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Canada's national weekly current affairs magazineTue, 31 Mar 2015 18:06:24 +0000en-CAhourly1http://wordpress.org/?v=3.5.2What to expect of Ben Bernanke’s final farewellhttp://www.macleans.ca/politics/washington/what-to-expect-of-ben-bernankes-final-farewell/
http://www.macleans.ca/politics/washington/what-to-expect-of-ben-bernankes-final-farewell/#commentsWed, 29 Jan 2014 11:22:56 +0000The Associated Presshttp://www2.macleans.ca/?p=458419WASHINGTON – The Federal Reserve is expected Wednesday to further reduce its stimulus for the U.S. economy even though that prospect has unsettled global financial markets.
The Fed announced last…

WASHINGTON – The Federal Reserve is expected Wednesday to further reduce its stimulus for the U.S. economy even though that prospect has unsettled global financial markets.

The Fed announced last month that it would pare its monthly bond purchases from $85 billion to $75 billion. And it said that if the economy kept improving, it would likely further slow its bond buying at future meetings. The Fed’s bond purchases have been intended to keep long-term loan rates low to spur spending and economic growth.

Most economists expect a string of $10 billion monthly reductions in bond purchases to be announced at each Fed meeting this year, concluding with a final $15 billion cut in December.

The two-day Fed meeting that ends Wednesday will be the last to be presided over by Ben Bernanke, who is stepping down after eight years as chairman and will be succeeded next week by Vice Chair Janet Yellen. She is expected to stick closely with Bernanke’s policies.

Last month, along with the modest trim in its bond purchases, the Fed made clear it plans to keep short-term rates historically low “well past” the time the unemployment rate dips below 6.5 per cent. The rate is now 6.7 per cent.

Managing a slowdown in the Fed’s bond purchases without roiling markets will pose a tough early test for Yellen. Investors have been nervous in part because a pullback in Fed bond buying will likely mean higher rates. Borrowing could weaken as a result.

Many also fear that higher U.S. rates will lead some bond investors to move cash out of emerging markets and into the United States to seek higher returns. That fear has depressed currency values and roiled stock markets in a number of developing countries.

The Turkish central bank held an emergency meeting Tuesday and announced it was raising a key rate from 7.75 per cent to 12 per cent to try to reduce inflation and boost its currency, the lira, which had fallen to a record low.

The Fed decided in December to start trimming the bond purchases mainly because of evidence the U.S. economy is strengthening and needs less support from the Fed.

Turmoil in overseas markets has battered the currencies of Turkey, Argentina and other emerging economies. Those economies had previously enjoyed an inflow of investor money.

“Now, those countries are having to deal with a reversal of those flows,” said David Jones, chief economist at DMJ Advisors and the author of a new book on the Fed.

Jones see the market turbulence as a “perfect illustration of the tricky transition that Yellen will have to manage” as the Fed winds down the programs it put in place after the financial crisis erupted in 2008. Still, he doesn’t think the Fed will diverge from the pace of its bond-buying reductions unless market turmoil begins to slow the U.S. economic recovery.

Bernanke is ending his tumultuous eight-year tenure at the Fed amid tentative signs of a stronger U.S. economy. Employers created only 74,000 jobs in December, far below the 214,000 average of the previous four months. But many analysts think the lacklustre December total marked a temporary pause or a statistical aberration.

Throughout 2013, the Fed bought $85 billion a month in Treasury and mortgage bonds to try to keep long-term rates down to stimulate borrowing by businesses and consumers.

Bernanke’s first mention of a pullback in bond purchases, in mid-2013, triggered a mini-panic in the stock market. Afterward, the Fed stepped up its efforts to assure investors that a pullback in purchases didn’t mean the Fed would soon raise the short-term rates it controls.

Since the recession ended in June 2009, economic growth has remained subpar. Analysts are forecasting a brighter 2014, in part because the federal government will impose less drag this year.

One other reason no surprise is expected from the Fed this week is that it’s undergoing a leadership transition. When Yellen takes over next week, she’ll become the first woman to lead the Fed in its 100-year history.

Even before she takes over, the central bank will have four new voters from among 11 Fed regional bank presidents whose votes rotate each year.

Kansas City Fed President Esther George dissented seven times last year over her concern that the Fed’s bond buying could destabilize financial markets and unleash high inflation. George doesn’t have a vote this year. But two others who do — Charles Plosser, head of the Philadelphia Fed bank, and Richard Fisher, head of the Dallas Fed bank — are, like George, considered inflation “hawks.” Plosser and Fisher might dissent if they feel the Fed isn’t moving fast enough to pare its bond purchases.

The two other new voters are Minneapolis Fed President Narayana Kocherlakota, who has favoured keeping rates low, and Cleveland Fed President Sandra Pianalto, a moderate who backed Bernanke’s policies.

Pianalto plans to step down this year. And President Barack Obama has nominated two new members to the Fed’s board. If confirmed by the Senate, Stanley Fischer, former head of the Bank of Israel and a one of Bernanke’s former college professors, would become vice chair. And Lael Brainard, a top Treasury official in Obama’s first term, would become a Fed governor. Both are viewed as supporters of the Bernanke-Yellen approach to rates.

]]>http://www.macleans.ca/politics/washington/what-to-expect-of-ben-bernankes-final-farewell/feed/0U.S. sales of new homes drop in December but for all of 2013 climb to strongest level since 2008http://www.macleans.ca/general/u-s-sales-of-new-homes-drop-in-december-but-for-all-of-2013-climb-to-strongest-level-since-2008/
http://www.macleans.ca/general/u-s-sales-of-new-homes-drop-in-december-but-for-all-of-2013-climb-to-strongest-level-since-2008/#commentsMon, 27 Jan 2014 15:30:28 +0000The Associated Presshttp://www2.macleans.ca/?p=457909WASHINGTON – U.S. sales of new homes fell in December for a second consecutive month but even with the pause at the end of the year, sales for all of…

WASHINGTON – U.S. sales of new homes fell in December for a second consecutive month but even with the pause at the end of the year, sales for all of 2013 climbed to the highest level in five years.

Sales of new homes dropped 7 per cent in December to a seasonally adjusted annual rate of 414,000, the Commerce Department reported Monday. In November, sales had fallen 3.9 per cent.

For the whole year, sales were up 16.4 per cent to 428,000, the highest level since 2008.

It marked the second year that sales have risen after six consecutive annual declines as the housing industry was rocked by the collapse of a housing bubble. Sales of new homes peaked at 1.28 million in 2005. Analysts expect further sales gains in 2014.

The median price of a new home was $270,200 in December, up 4.6 per cent from a year ago and up 0.6 per cent from November. The median is the point where half the homes sell for more and half for less.

There were 171,000 new homes on the market at the end of December, a drop of 2.8 per cent from November. At the December sales pace, that would represent a 5 month supply. That is lower than the six-month supply that economists view as healthy.

Housing was one of the strongest sectors of the recovery in the first half of 2013, but then it hit a lull during the summer when mortgage rates jumped on indications the Federal Reserve might soon start reducing the bond purchases it was making to keep long-term interest rates low.

But analysts are looking for housing to regain some of its lost momentum as the industry enters the all-important spring buying season. Analysts expect that continued improvements in the labour market will boost incomes and that will lead to stronger demand for homes.

Sales of previously occupied homes rebounded 1 per cent in December helping that market to sales for all of 2013 of 5.09 million. That was the best performance since 2006 when sales totalled 6.48 million. However, the sales gains in both 2005 and 2006 represented an unsustainable housing boom which collapsed, helping drag the economy into a deep recession which triggered a painful retrenchment in housing.

Analysts expect housing will keep recovering in 2014 but they don’t look for the sales gains to be as large as they were in 2013.

Economists at Global Insight predict that growth of existing home sales will slow a bit from the 8.8 per cent gain in 2013 but still show a respectable increase of 5.1 per cent in 2014.

Mortgage rates rose in the summer to nearly a full percentage point higher than they were in the spring, when they were at record lows. And a limited supply of homes on the market helped drive up prices. The combination of rising mortgage rates and rising prices made home buying less affordable, particularly for first-time buyers.

Builders started work on 923,000 new homes and apartments in 2013, up 18.3 per cent from 2012. It was the fourth straight annual gain and the strongest construction pace since 2007 when 1.36 million homes were started.

WASHINGTON – U.S. employers added a scant 74,000 jobs in December, the fewest in three years. The disappointing figure ends 2013 on a weak note and raises questions about whether the job market can sustain its recent gains.

The Labor Department said Friday that the unemployment rate fell from 7 per cent in November to 6.7 per cent, the lowest level since October 2008. But the drop occurred mostly because many Americans stopped looking for jobs. Once people without jobs stop looking for one, the government no longer counts them as unemployed.

Stock futures fell after the report was released. And the yield on the 10-year Treasury note fell to 2.93 per cent about 10 minutes after the report was released from 2.97 late Thursday.

It’s unclear whether the sharp hiring slowdown might lead the Federal Reserve to rethink its plan to slow stimulus efforts. The Fed decided last month to pare its monthly bond purchases, which are designed to lower interest rates.

“I don’t think the Fed is going to be panicked by this,” said Joel Naroff, president of Naroff Economic Advisors.

Naroff suggested that the 6.7 per cent unemployment rate — a drop of more than a full percentage point since 2013 began — will eventually lead many employers to raise wages.

“It doesn’t change what they’re thinking,” Naroff said of the Fed.

Some economists said they want to see more data before concluding that the economy has lost momentum.

“We stop short of making larger observations based on this number,” said Dan Greenhaus, chief global strategist at brokerage firm BTIG. “The economy, based on any number of other indicators, has been picking up steam of late which makes today’s number..curious.”

Some analysts noted that the government revised up its estimate of job growth in November by 38,000 to a robust 241,000.

Still, December’s hiring is far below the average gain of 214,000 jobs a month in the preceding four months. Monthly gains averaged 182,000 last year, nearly matching the previous two years.

The proportion of people working or looking for work fell to 62.8 per cent, matching a nearly 36-year low.

Many industries posted weaker gains or cut jobs. Health care cut 6,000 positions, the first cut in 10 years. That could raise questions about the impact of President Barack Obama’s health care reform. Transportation and warehousing cut a small number of jobs, suggesting shippers hired fewer workers for the holidays. Government cut 13,000. The motion picture industry shed 14,000 jobs.

Recent data have painted a picture of an economy on the steady rise. Exports hit a record level in November, lowering the U.S. trade deficit. Businesses have ordered more manufactured goods. Auto sales reached a six-year high in 2013.

Analysts now estimate that the economy expanded at a healthy annual rate of 3 per cent to 3.5 per cent in the October-December quarter. That’s up from earlier forecasts of a 2 per cent rate or less. It would follow a strong 4.1 per cent growth rate reported for the July-September quarter.

About four years ago economists and investors took to viewing America and Britain as lab rats in a vast, real world experiment. The two countries were by no means willing subjects. (What lab rat ever is?) Crawling out of a deep global recession, each nation was desperate to find a path to growth. For observers peering into the maze, however, the hope was to finally settle one of the most entrenched debates in economics: Is it better for governments to boost spending to stimulate an economy, as President Barack Obama regularly argued, or should countries that lived beyond their means pursue austerity to get their fiscal houses in order and restore investor confidence? The latter was Prime Minister David Cameron’s aim.

It was rare for two large, well-developed economies take such divergent paths simultaneously, and Gary Becker, a Nobel prize-winning economist at the University of Chicago, told me in 2011 that within two years he expected to see preliminary test results.

And yet a funny thing happened along the way: America became a pillar of austerity.

Hold on one minute, you might be saying. America is an over-entitled, fiscal basket case. The country’s spending is out of control, the public sector is hopelessly bloated and households are so deep in debt they’ll take decades to recover. America is like Greece, only with more cheeseburgers and handguns.

It might have looked that way at one time, but a closer examination of the data shows America has taken huge strides to reverse its spendthrift ways. Let’s start with the trillion-dollar deficits that dominated headlines after 2009. You’ll notice they’re absent of late. In the last year, America’s deficit, once as high as $1.4 trillion in 2009, dropped nearly 40 per cent to $680 billion. Measured another way, relative to the size of America’s economy, the deficit is expected to fall to three per cent of GDP in the next year, from 10 per cent in 2010—the sharpest fiscal adjustment America has witnessed since the 1970s. While belt tightening in the U.K. continues apace—the Chancellor of the Exchequer George Osborne warned this week Britons should prepare for “a year of hard truths”—the red ink has been slower to vanish. (For charts on the deficit fight in the U.S. and U.K., and how Canada compares, check out the Econowatch blog.)

Higher taxes in both countries helped efforts to tame deficits, but American spending cuts have been almost unprecedented: Government spending in the U.S. has declined right through the recovery and is roughly 15 per cent lower than where it would have been at this stage in America’s seven previous recoveries. That spending restraint has meant an avalanche of pink slips for government workers. The number of public sector jobs is at its lowest point since 2006, down nearly four per cent from 2009—a major reason, it must be said, for why America’s unemployment rate has been slow to drop.

America’s households have also waged their own austerity war. According to David Rosenberg, chief economist at Gluskin Sheff, consumer debt relative to disposable income has shrunk to where it was a decade ago. “The entire massive 2002-07 credit expansion has been reversed,” he wrote in a report. “The household sector is in a far better financial position to contribute to economic activity.”

Of course, America’s austerity drive was in no way a policy initiative on the part of the Obama White House. Rather, it was a by-product of a bloody slugfest toward compromise with the Republican-held House, a fight that took the global economy to the brink multiple times. (See: debt ceiling crisis, government shutdown, fiscal cliff, sequestration, debt ceiling crisis II.)

None of this is to say America doesn’t still have serious fiscal challenges ahead. Its debt level continues to grow at a worrisome rate. Without entitlement reform, deficits are forecast to explode in a decade. And if interest rates rise, debt charges threaten to undo all the progress made to date.

And yet here we are, with an American economy the OECD expects will grow 2.9 per cent this year and 3.4 per cent in 2015, compared to 2.4 per cent and 2.5 per cent in the U.K. “What the [U.S.] economy has had to endure is a balance sheet adjustment process of epic proportions,” says Rosenberg. “We had a recovery held back by intensive balance-sheet repair.”

What does all this mean for the Great Economic Experiment? Despite America’s more aggressive assault on its deficit, its economy is growing faster than Britain’s. The stock market bull run of the past three years, it can be argued, also reflects growing confidence among investors that austerity did work, painful though it’s been, and that America won’t tumble into its fiscal gap. And yet, many economists argue spending cuts have done real damage, that the economy would be further ahead if they hadn’t happened.

Like most matters economic, there will probably never be agreement. But it’s time to put the idea that America is a hopeless deadbeat to rest.

With its 1.5 million factory workers earning as little as $300 a month to make iPhones, laptops and PlayStations, the Chinese behemoth Foxconn has become a potent symbol of America’s manufacturing decline and the transfer of jobs to Asia.

Which is why so many are taking Foxconn’s recent announcement that it would invest $30 million to hire 500 workers for a new robotics factory in Harrisburg, Pa., starting in 2014—and possibly a second factory in Arizona—as proof of a stunning reversal of fortune for American manufacturing, an industry long ago written off as a casualty of globalization.

From 2000 to 2009, America bled nearly six million manufacturing jobs, or a third of its industrial workforce, as companies shifted production overseas. But over the past two years, the country has seen the green shoots of manufacturing’s rebirth. Since 2011, the U.S. has added 550,000 new manufacturing jobs, according to the Bureau of Labor Statistics, marking the first positive news for the sector since 1997. The renaissance isn’t concentrated in any one industry or region. In the past year, companies as diverse as General Electric, Dow Chemical and Apple have opened or announced plans for new production facilities in places ranging from Pennsylvania to California. Google, which purchased Motorola’s handset division, is making its Moto X smartphone in a shuttered Nokia factory in Forth Worth, Texas. China’s Lenovo, the world’s second-largest PC manufacturer, plans to make ThinkPad laptops in North Carolina, while last month, Apple said it will build a factory in Mesa, Ariz.

Foxconn says its plans are largely driven by the fact that its customers, American tech darlings such as Apple and Hewlett-Packard, are under intense public pressure to reshore production in the aftermath of the financial crisis. “We are looking at doing more manufacturing in the U.S. because, in general, customers want more to be done there,” company spokesman Louis Woo told Bloomberg.

Wal-Mart has similarly jumped on the made-in-America bandwagon. Earlier this year, the company pledged to spend $50 billion over the next decade to source more domestic products, which it will sell under the banner Made Here. “Labour costs in Asia are rising. Oil and transportation costs are high and increasingly uncertain,” Wal-Mart U.S. CEO Bill Simon told a manufacturing conference in August. “The equation is changing.”

Skeptics say such announcements are more about companies retooling their public relations efforts than their production lines. But beyond the good press generated from such announcements are the rapidly shifting economics of U.S. manufacturing, laid out in a series of influential reports by the Boston Consulting Group that predicted the U.S. would reach cost parity with China by 2015, and create as many as five million new jobs related to manufacturing by the end of the decade. The Manufacturers Alliance for Productivity and Innovation, an industry lobby group, forecasts the U.S. will create as many as 350,000 new manufacturing jobs next year alone, as more companies transfer production to American shores.

“What we’re seeing today is, frankly, the beginning,” says Michael Zinser, who co-authored the studies. “Companies are starting to take that long-term look even earlier than we might have thought. It’s happening quickly.”

Chinese wages are rising as much as 20 per cent a year, while U.S. wages have fallen in the aftermath of the financial crisis, he says. The shale-gas boom, which could potentially unlock more than two trillion cubic feet of natural gas, has helped drive down energy costs. Natural gas now costs roughly a quarter of what it does in China.

In a perverse twist, Zinser says America’s massive trade deficit with China is beginning to work in the country’s favour by lowering shipping costs. Freighters are arriving full of Chinese goods, but leaving empty, which has made it cheaper to get cargo space on ships heading back to Asia. Zinser says it now costs roughly as much to exports goods from the U.S. to China as it does to ship to China from Japan. “For better or worse, the U.S. actually has an advantage, when you think about sending product back overseas,” he says.

For manufacturers focused on the U.S. market, cutting out overseas shipping saves both time and money. For instance, market research firm IHS found it costs Google slightly less to manufacture the Moto X smartphone in Texas than it does for Samsung to make its popular Galaxy S4 smartphone in Korea. By using standardized parts and manufacturing at home, IHS found Google was able to get its phones into customers’ hands in as little as four days, compared to weeks for overseas manufacturers. Meanwhile, with assembly wages at the Texas plant starting at just $9 an hour, labour accounts for a mere five per cent of the total cost of making the Moto X.

Critics point out that manufacturers in low-cost southern states such as Texas have pushed wages too low in the drive to make the U.S. as cheap as China, a country with a far lower cost of living. Yet, as China’s cost advantage erodes, companies are becoming less tolerant of the headaches that come with manufacturing overseas: the late-night phone calls, expensive trips, shipping delays and long production lead times. “We’re not yet seeing lots of companies who are talking about just the economics about why they’re reshoring,” Zinser says. “It’s the quality, it’s the proximity to customers, it’s the ease of doing business in the U.S.”

Of the nearly 550,000 manufacturing jobs created in the last two years, just 50,000 were because companies shifted work from overseas, according to industry lobby group The Reshoring Initiative, which works with companies to move production back to the U.S. Many say the trend is really just a modest rebound from the dark days of the financial crisis, when 15 per cent of manufacturing jobs disappeared—the worst job loss of any single recession. “When you look at the losses in manufacturing that we had in the Great Recession, they were pretty astounding,” says Robert Atkinson, founder of the Washington think tank Information Technology and Innovation Foundation. “Now we’re getting a few back and people are like, ‘Oh my God, it’s manufacturing nirvana.’ It is largely just cyclical rebound.”

If U.S. manufacturing were undergoing a true renaissance, Atkinson says manufacturing output would be growing faster than the overall economy across a wide array of industries, and the country’s trade deficit would be shrinking because of rising exports. Instead, durable-goods shipments were up just 3.3 per cent in October compared to a year earlier, roughly equal to GDP growth. The country is running a $532.7-billion trade deficit for goods so far this year. Manufacturing exports are up just 1.5 per cent for the year, a pace that “remains frustratingly slow,” the National Association of Manufacturers’ chief economist Chad Moutray complained in a blog post in November. Atkinson says capital investment among chemical manufacturers, an industry that stands to benefit the most from the shale-gas boom, was actually lower this year than in 2007, before the financial crisis. “People want to believe in [a renaissance] so much that there’s a tendency to selectively look at the evidence to paint a more positive picture than is really there,” he says.

Still, even if evidence for a full-blown recovery is mixed, there’s a growing desire among today’s manufacturers to avoid repeating the mistakes of the past, says MIT political scientist Suzanne Berger, who has studied how manufacturers turn innovative research into a commercial product. When production leaves the country, innovation will eventually go with it, she says. That was the fate of America’s semiconductor industry, a technology developed in the U.S. but now designed and manufactured principally in Asia. “People followed each other overseas like lemmings, without really knowing what the costs would be,” she says. “There’s a lot more realism in the minds of manufacturing managers today.”

As an example of the new ways of thinking, Berger points to the National Additive Manufacturing Innovation Institute, a public-private partnership created last year with $30 million in federal funds and $50 million in private investment that brings together dozens of research institutes, training centres and thousands of large and small manufacturers in the northeast. Its goal is to explore industrial uses for 3D printing that could potentially enable manufacturers across a wide array of industries to make highly customized tools and parts for a fraction of the cost and time it takes to ship them from overseas. Foxconn’s decision to build a robotics factory in the region was due in part to the allure of such expertise.

Clusters that bring together a diversity of manufacturing industries can help strengthen the economy against future recessions, Berger says. “You would have firms that were suppliers for each other that have some overlaps, but would not all be doing the same thing. None of us are eager to repeat the one-industry towns that were really quite vulnerable to crisis.”

Such investments may take decades to pay off, if they ever do. In the meantime, even those who believe strongly that U.S. manufacturing is turning a corner understand that America’s new-found cost advantage is likely temporary. Chinese productivity is gradually catching up with the U.S. Other countries are actively looking to exploit their own natural gas reserves. Still more are researching 3D printing technology. Boston Consulting Group’s Zinser estimates the U.S. cost advantage can last another five or 10 years, a window of time that can easily be squandered without the right policies and investments. But, for the millions of unemployed workers who thought the industrial economy’s best days were behind it, the mere talk of a manufacturing renaissance is likely the greatest news they’ve had in years.

]]>http://www.macleans.ca/economy/business/why-factory-jobs-may-be-returning-to-america/feed/16Budget compromise removes much of the economic drag and risks coming from Washingtonhttp://www.macleans.ca/general/budget-compromise-removes-much-of-the-economic-drag-and-risks-coming-from-washington/
http://www.macleans.ca/general/budget-compromise-removes-much-of-the-economic-drag-and-risks-coming-from-washington/#commentsWed, 18 Dec 2013 11:15:02 +0000The Associated Presshttp://www2.macleans.ca/?p=449759WASHINGTON – Congress is on the verge of doing something it hasn’t done during three years of partisan warfare: Passing a budget deal that won’t likely hurt the economy.
The…

WASHINGTON – Congress is on the verge of doing something it hasn’t done during three years of partisan warfare: Passing a budget deal that won’t likely hurt the economy.

The two-year spending plan the Senate is expected to approve Wednesday all but removes the threat of another government shutdown like the one that slowed the economy in October. Among other things, the agreement will roll back some of the automatic federal spending cuts that kicked in this year.

The result? Economists say the U.S. economy has a good chance to accelerate at its fastest pace since before the Great Recession struck six years ago.

Growth has plodded along at a 2.4 per cent annual rate so far this year. Bolstered in part by the budget deal, the economy is poised to expand 2.9 per cent next year, its healthiest pace since 2005, according to an Associated Press survey of economists.

“There was a lot of austerity in 2013,” said Michael Hanson, senior U.S. economist at Bank of America. “We should have a lot less in 2014.”

President Barack Obama is expected to sign the bipartisan compromise. The measure overwhelmingly cleared the House last week. On Tuesday, the Senate advanced the bill in a procedural vote, setting the stage for final passage.

The deal marks a sharp change from recent years in which partisan hostilities led to governance by crisis. Deals were struck between Democrats and Republicans only as the government neared an emergency. A last-minute deal in October, for example, removed the threat of a default on the national debt that could have triggered another recession.

The earlier budget deals helped shrink the deficit. But they’ve also squeezed workers and businesses by hindering growth. Higher tax rates, along with spending cuts, subtracted 1.5 percentage points from annual growth this year, according to the Congressional Budget Office. That’s the difference between an economy limping along at 2.4 per cent annual growth and one accelerating at close to a 4 per cent rate.

With the new deal in place, economists estimate that the government will exert less of a drag on the economy. The drag on growth from federal policies should decline from 1.5 percentage points this year to 0.5 percentage point at the most, economists estimate.

The bill approves spending in 2014 at slightly more than $1 trillion, compared with the $967 billion mandated by the automatic spending cuts. It boosts spending by $63 billion over two years.

It replaces the spending cuts with longer-term savings, many of which don’t accumulate for nearly another decade. Airline passengers will pay higher ticket fees, but the additional revenue won’t come from tax increases. Deficits would rise slightly in 2014 and 2015.

The compromise could also spur businesses to hire and expand because they’re no longer operating under the threat of another government shutdown. It also suggests that a compromise will be reached when Congress must again raise the debt limit in February to prevent a possible default. Just the appearance of two nearly implacable political parties agreeing on the first bipartisan budget pact since 1986 has increased hope.

“More significant is that there is a deal at all, as that should eliminate the risk of another shutdown,” said Jim O’Sullivan, chief U.S. economist at High Frequency Economics, who forecasts that the economy will grow 3.3 per cent next year largely as a result of less drag from the government.

The agreement could also make it easier for the Federal Reserve to scale back its purchases of $85 billion in bonds each month. The Fed program has been intended to lower loan rates to boost borrowing, spending and investing. But even as hiring has picked up, Chairman Ben Bernanke has been reluctant to slow the purchases until Congress settled its differences on the budget.

Economists said the additional spending from repealing some of the spending cuts should help growth. But some of the gains could be offset by the end of emergency unemployment benefits on Dec. 28. The federal program has extended benefits to 1.3 million people who’ve been out of work longer than six months. The program’s expiration could hurt because the beneficiaries will have less money to spend on food, housing, clothes and transportation.

But on the whole, the budget deal is viewed as a net positive for the economy.

“For the first time in recent years in Washington, D.C., lunacy has given way to a baby step back towards sanity,” said David Kotok, chairman of Cumberland Advisors, in a client note.

]]>http://www.macleans.ca/general/budget-compromise-removes-much-of-the-economic-drag-and-risks-coming-from-washington/feed/0Will he or won’t he? Waiting on Ben Bernankehttp://www.macleans.ca/economy/business/will-he-or-wont-he-waiting-on-ben-bernanke/
http://www.macleans.ca/economy/business/will-he-or-wont-he-waiting-on-ben-bernanke/#commentsWed, 18 Dec 2013 10:49:38 +0000The Associated Presshttp://www2.macleans.ca/?p=449743WASHINGTON – Investors are waiting to see whether one of Ben Bernanke’s final acts as chairman of the Federal Reserve will be to announce a pullback in the Fed’s bond…

WASHINGTON – Investors are waiting to see whether one of Ben Bernanke’s final acts as chairman of the Federal Reserve will be to announce a pullback in the Fed’s bond purchases. The purchases have been intended to keep long-term loan rates low to spur economic growth.

It’s a close call.

But most economists think that when the Fed’s latest policy meeting ends Wednesday, it will announce that it’s maintaining its pace of $85 billion a month in bond purchases despite a drop in unemployment to 7 per cent and other improving economic data.

One factor in the Fed’s hesitance to reduce its stimulus is that inflation remains historically low. The Fed’s optimal rate is 2 per cent. For the 12 months ending in October, consumer inflation as measured by the Fed’s preferred index is just 0.7 per cent, well below its target. The Fed is as concerned about under-shooting the inflation target as over-shooting it. Both are seen as threats to the economy.

On Wednesday, Bernanke will also give his final quarterly news conference. His second four-year term as chairman ends Jan. 31, when Vice Chair Janet Yellen will likely succeed him. The Senate is expected to approve Yellen’s nomination this week.

Most analysts think the Fed will start trimming its bond purchases at one of its next two meetings, either in January or March.

The decision carries high stakes for individuals, businesses and global financial markets. A pullback in the bond buying would likely send long-term rates up and stock and bond prices down.

That the Fed is even considering slowing its stimulus is testament to the economy’s improvement. Hiring has been robust for four straight months. Unemployment is at a five-year low of 7 per cent. Factory output is up. Consumers are spending more at retailers. Auto sales haven’t been better since the recession ended 4 1/2 years ago.

What’s more, the stock market is near all-time highs. Inflation remains below the Fed’s target rate. And the House has passed a budget plan that seems likely to avert another government shutdown next year. The Senate is expected to follow suit.

“It really feels like the economy has finally hit escape velocity,” said Mark Zandi, chief economist at Moody’s Analytics, citing a term Bernanke has used for an economy strong enough to propel growth and shrink unemployment without the Fed’s extraordinary help.

Still, only one-fourth of more than three dozen economists surveyed last week by The Associated Press expect the Fed to scale back its bond purchases this week.

The economists surveyed by the AP think Yellen will be more “dovish” than Bernanke — that is, more likely to stress the need to reduce still-high unemployment than to worry about inflation that might arise from the Fed’s policies.

Bernanke’s mention in June that the Fed might start to reduce its bond purchases before year’s end sent stocks and bonds into a temporary tailspin. They have since recovered. Stocks are trading near new highs. And the rate on the benchmark 10-year Treasury has stabilized, though it’s still a full percentage point above its level in early May.

The calmness among investors suggests that they’ve absorbed a point Bernanke has stressed repeatedly: That even after the Fed scales back its bond purchases, it will still provide significant support for the economy. Fed officials have invoked the imagery of a driver easing up on a gas pedal without pressing the brakes.

In addition, the Fed plans to leave its key policy lever for short-term rates at a record low near zero, where it’s been since December 2008. It has said it plans to leave its short-term rate ultra-low at least as long as unemployment remains above 6.5 per cent and the outlook for inflation doesn’t top 2.5 per cent.

An unemployment rate of 6.5 per cent wouldn’t automatically trigger a rate increase, Bernanke has said. To stress that short-term rates will remain ultra-low, some Fed officials favour announcing an unemployment threshold of 6 per cent before any rate increase would be considered.

Some economists think the Fed may decide to leave its policy unchanged in December just because Bernanke and other officials have sent no clear signal of their intentions.

“Reducing bond purchases is going to happen at some point, but I don’t think they have done enough explaining yet to prepare the markets for the move,” said Diane Swonk, chief economist at Mesirow Financial.

Once the Fed does slow its bond purchases, many economists think it will start by reducing its monthly pace by just $10 billion to $75 billion.

Because of the transition from Bernanke to Yellen and the need to fill other spots on the Fed’s policy panel, some economists think the Fed might decide not to trim its bond purchases until March — the first meeting with Yellen in charge.

“I think they will wait until March when they have a new team in place,” said Sung Won Sohn, an economics professor at the Martin Smith School of Business at California State University.

WASHINGTON – Loonie-loving Canadians might be bemused to learn that their American brethren suffered a setback last week in the long, unfulfilled quest to supplant the U.S. paper dollar with coins.

A U.S. Federal Reserve research paper panned the idea of eliminating that greenback in the latest phase of a debate that has continued, off and on, in the quarter-century since Canada ditched its own green buck.

That assessment was based on economic calculations.

“We believe that the $1 Federal Reserve note should remain in circulation and not be replaced with a $1 coin,” said the working paper, released last week by three members of the Fed’s board of governors.

“The real resource costs to produce $1 coins and private-sector costs to handle $1 coins exceed the costs to produce and handle $1 notes over 30 years, resulting in the all-$1-coin environment costing payment system participants significantly more than the current co-circulation environment.”

Americans have had dollar coins, with special releases since the 1970s, but as they remain unpopular with everyday users the government has stopped distributing them and U.S. wallets remain stuffed to this day with the green, stony gaze of George Washington.

Still, the idea of a dollar coin manages to stir some people’s passions.

In yet another time-honoured American tradition, competing industries have rallied around respective lobby groups to exert pressure on Capitol Hill.

On one side, it’s the paper industry. On the other, it’s the mining companies and vending-machine industry through their group, the Dollar Coin Alliance. The alliance offers a write-to-Congress function on its website where people enter their zip code and, presto, a letter supporting coin dollars instantly gets sent to their local representatives in the Senate and House.

The Dollar Coin Alliance was unimpressed with last week’s report.

“The United States is virtually the only developed country to still use paper currency with such low purchasing power; a dollar bill today buys about what a quarter did in the 1970s,” the group said.

It criticized the findings, saying they contradicted a string of reputable reports that touted billions in potential savings from a coin dollar. And it suggested the Fed might have an ulterior motive: fear of losing $2 billion per year if it’s no longer in charge of issuing dollars. Responsibility for issuing coins belongs to another body, the U.S. Mint.

“They are practically alone in their opposition to a dollar coin, as nearly every industrialized economy in the world has transitioned its lowest denomination currency to a coin,” said a statement from the alliance.

“This begs the question, why did the Federal Reserve feel compelled to spend seemingly hundreds of thousands of taxpayer dollars and countless staff hours producing a report that contradicts dozens of previous studies and common sense?”

It’s actually up to Congress whether paper bills should be phased out, and legislation to that effect has been sponsored by several lawmakers including Sen. John McCain.

“We are not the decision makers,” Fed spokeswoman Susan Stawick noted in an email. She added, however, that the body would be expected to weigh in on such a debate and said last week’s paper was an attempt to do just that.

The Government of Canada has also waded into the discussion.

In testimony before Congress, a senior official at the Royal Canadian Mint described the country’s long experience with coin dollars and its more recent move to multi-ply plated steel.

“Canadians have come to embrace the one-dollar coin, which they nicknamed the ‘loonie’ by virtue of its iconic bird design, and use it as they would any other coin,” Beverley Lepine, the mint’s chief operating officer, told a House of Representatives committee last year.

“In a June 2012 online poll conducted on the loonie’s 25th anniversary by the CBC, Canada’s public broadcaster, almost 70 per cent of Canadians identified the coin as a recognizable symbol of Canada and many of those consider it a national icon equal to the beaver and Maple Leaf.”

But the Federal Reserve report said the world has changed since Canada got its birdie-buck.

For starters, electronic payment systems have mushroomed at stores and vending machines. So past analyses on the long-term savings would, it said, have to be revised.

“Many other countries made their decisions to replace low-denomination notes with coins when electronic and other card payment substitutes for cash were less mature than today,” the paper said.

“Canada replaced its lowest denomination note with a coin in 1987, Australia in 1984, and the United Kingdom in 1983. At that time, the number of electronic point-of-sale (POS) devices in those countries was virtually nonexistent… Current conditions in the United States, however, differ from those in other countries at the time of their transition efforts.”

Also, paper money is now more sophisticated and lasts longer, the report said.

For those reasons, and others, the report concluded that the initial investment in more expensive, but longer-lasting, dollar coins would never be recouped to the point where it’s financially viable.

The Canadian government doesn’t sound convinced.

In any case, it certainly isn’t planning to stop mass-producing gold-coloured bucks — just like the one famously planted beneath an American hockey rink before a Canada-U.S. Olympic final, and later shown to the world by a triumphant Wayne Gretzky.

“Although a bank note may be less costly to produce than a coin, the average life of a coin is about 20 to 30 years, resulting in considerable savings over a larger time horizon,” a Finance Department official said in an email.

]]>http://www.macleans.ca/economy/business/u-s-federal-reserve-report-pans-idea-of-coin-dollar/feed/4U.S. job openings and number of workers quitting hit 5-year highshttp://www.macleans.ca/general/u-s-job-openings-and-number-of-workers-quitting-hit-5-year-highs/
http://www.macleans.ca/general/u-s-job-openings-and-number-of-workers-quitting-hit-5-year-highs/#commentsTue, 10 Dec 2013 17:18:45 +0000The Associated Presshttp://www2.macleans.ca/?p=447641WASHINGTON – U.S. employers advertised the most job openings in more than five years in October, and the number of people quitting also reached a five-year high.
The Labor Department…

WASHINGTON – U.S. employers advertised the most job openings in more than five years in October, and the number of people quitting also reached a five-year high.

The Labor Department said Tuesday that job openings rose 1 per cent to a seasonally adjusted 3.93 million. That is the highest figure since May 2008, three months after the Great Recession began.

And the number of workers who quit rose 2.5 per cent to 2.39 million, the most since October 2008. More workers quitting can signal a healthy job market, because most of those people likely either have a new job or are confident they can find one.

Total hiring, though, slipped 2.6 per cent to 4.5 million after reaching a five-year high in September. Still, overall hiring has risen 5.2 per cent in the past year.

More hiring, job openings and quits point to a more dynamic job market. That trend creates more opportunities for people out of work or looking for a new job.

Another positive sign in the report: Layoffs plunged 16 per cent to 1.47 million, the lowest level on records dating to 2001. Still, while fewer layoffs are welcome, businesses need to step up hiring to more quickly reduce the still-high unemployment rate of 7 per cent.

Job openings remain just below the 4 million figure that is thought to be consistent with a healthy job market. And employers usually hire about 5 million people each month in a normal economy.

The job market remains competitive, even though the competition is easing. There were 2.9 unemployed people, on average, for each available job in October. That’s down from a ratio of nearly 7 to 1 in July 2009, just after the recession ended. In a healthy economy, the ratio is typically 2 to 1.

Other recent reports show that businesses are adding jobs at a solid, steady pace. Employers added 203,000 positions in November, the government said Friday. The unemployment rate fell to a five-year low of 7 per cent. Job gains have now averaged about 200,000 for the past four months.

Those figures reflect net payroll gains — the number of people hired minus those who were laid off, quit or retired. Tuesday’s report on job openings and labour turnover provides more details than the monthly employment report.

Both Federal Reserve Chairman Ben Bernanke and Janet Yellen, who has been nominated to succeed him next year, have cited greater overall hiring and quits as key signs of the job market’s improvement.

]]>http://www.macleans.ca/general/u-s-job-openings-and-number-of-workers-quitting-hit-5-year-highs/feed/1U.S. regulators approve Volcker Rulehttp://www.macleans.ca/general/u-s-regulators-approve-volker-rule/
http://www.macleans.ca/general/u-s-regulators-approve-volker-rule/#commentsTue, 10 Dec 2013 17:17:40 +0000The Associated Presshttp://www2.macleans.ca/?p=447636WASHINGTON – U.S. banks will be barred in most cases from trading for their own profit under a federal rule approved Tuesday.
The Federal Reserve and the Federal Deposit Insurance…

WASHINGTON – U.S. banks will be barred in most cases from trading for their own profit under a federal rule approved Tuesday.

The Federal Reserve and the Federal Deposit Insurance Corp. each unanimously voted to adopt the so-called Volcker Rule, taking a major step toward preventing extreme risk-taking on Wall Street that helped trigger the 2008 financial crisis.

Three other regulators were expected to follow suit Tuesday.

Congress instructed regulators to draft the rule under the 2010 financial overhaul law.

The rule was agreed to after three years of drafts, debates and lobbying by Wall Street banks.

The final version is stricter than many had expected and are intended to prevent risky trading that required taxpayer-funded bailouts during the crisis. But the rule still provides some exemptions.

At its heart, the rule seeks to ban banks from almost all proprietary trading. The practice of trading for their own profit has been very lucrative for big banks like JPMorgan Chase, Bank of America and Citigroup. The rule also limits banks’ investments in hedge funds.

Still, the final version allows proprietary trading when it is done to facilitate buying and selling investment for customers. That is known as market-making.

Also exempted from the ban are cases when a bank underwrites a securities offering, and for trading in U.S. government, state and local bonds.

The other three agencies voting for the rule include the Securities and Exchange Commission, the Commodity Futures Trading Commission and the Treasury Department’s Office of the Comptroller of the Currency.

The largest U.S. banks — those with $50 billion or more in assets— will be required to fully comply with the terms of the rule by July 2015.

Other banks will have until 2016 to comply.

The biggest banks will also be required to have compliance programs approved by their boards and senior executives. Banks will have to begin reporting on the status of those programs starting next year.

The banks’ CEOs also will have to certify in writing to regulators that the banks have strong processes in place to ensure compliance.

The rule is named after Paul Volcker, a former Fed chairman who was an adviser to President Barack Obama during the financial crisis.

The rule “has the important objective of limiting excessive risk-taking by depository institutions,” current Fed Chairman Ben Bernanke said in a statement.

Big banks had reaped huge profits by taking extraordinary risks. But when those trades went bad during the crisis — especially after a wave of mortgage defaults — many of these banks were on the verge of collapsing. Most survived only because the government rescued them with taxpayer-funded bailouts.

The big Wall Street banks lobbied strenuously against the Volcker Rule. They argued that the ban could prevent them from market-making on behalf of customers or limiting risks.

Drafting the rule became very complicated. Regulators found it difficult to identify what constitutes proprietary trading in a bank’s day-to-day operations.

For example, banks often engage in market-making.

And then there’s what’s called portfolio hedging. That’s when the bank makes trades on its own account to hedge, or offset, the risks of a broad investment portfolio — as opposed to the risks of individual investments. It can be hard for regulators to distinguish when market-making and portfolio hedging cross over into proprietary trading.

]]>http://www.macleans.ca/general/u-s-regulators-approve-volker-rule/feed/0U.S. unemployment rate falls to 5-year low of 7 per centhttp://www.macleans.ca/economy/business/u-s-unemployment-rate-falls-to-5-year-low-of-7-per-cent/
http://www.macleans.ca/economy/business/u-s-unemployment-rate-falls-to-5-year-low-of-7-per-cent/#commentsFri, 06 Dec 2013 13:57:47 +0000The Associated Presshttp://www2.macleans.ca/?p=446786WASHINGTON – A fourth straight month of solid hiring cut the U.S. unemployment rate in November to a five-year low of 7 per cent. The gains in the job market…

The strengthening job market is likely to fuel speculation that the Federal Reserve may scale back its bond purchases when it meets later this month.

The economy has now generated an average of 204,000 jobs from August through November. That’s up from 159,000 a month from April through July.

Many of the November job gains were in higher-paying industries. Manufacturers added 27,000 positions, the most since March 2012. Construction firms gained 17,000. The two industries have created a combined 113,000 jobs in the past four months.

Another month of robust hiring follows other positive economic news. The economy expanded at an annual rate of 3.6 per cent in the July-September quarter, the fastest growth since early 2012, the government said Wednesday.

Still, nearly half that gain came from businesses building their stockpiles. Consumer spending grew at the slowest pace since late 2009.

Greater hiring could support healthier spending. Job growth has a dominant influence over much of the economy. If hiring continues at the current pace, a virtuous cycle starts to build. More jobs usually lead to higher wages, more spending and faster growth.

But more higher-paying jobs are also necessary. Roughly half the jobs that were added in the six months through October were in four low-wage industries: retail; hotels, restaurants and entertainment; temp jobs; and home health care workers.

The Fed has pegged its stimulus efforts to the unemployment rate. Chairman Ben Bernanke has said the Fed will ease its monthly purchases of $85 billion in bonds once hiring has improved consistently. The bond purchases have kept long-term interest rates low.

The recent economic upturn has been surprising. Many economists expected the government shutdown in October to hobble growth. Yet the economy motored along without much interruption, according to several government and industry reports.

Early reports on holiday shopping have been disappointing. The National Retail Federation said sales during the Thanksgiving weekend — probably the most important stretch for retailers — fell for the first time since the group began keeping track in 2006.

Consumers are willing to spend on big-ticket items. Autos sold in November at their best pace in seven years, according to Autodata Corp. New-home sales in October bounced back from a summer downturn.

]]>http://www.macleans.ca/economy/business/u-s-unemployment-rate-falls-to-5-year-low-of-7-per-cent/feed/0Walkouts return to fast food nationhttp://www.macleans.ca/news/world/walkouts-return-to-fast-food-nation/
http://www.macleans.ca/news/world/walkouts-return-to-fast-food-nation/#commentsThu, 05 Dec 2013 14:17:48 +0000The Associated Presshttp://www2.macleans.ca/?p=446310NEW YORK, N.Y. – Fast-food workers and labour organizers are set to turn out in support of higher wages in cities across the country Thursday.
Organizers say walkouts are planned…

NEW YORK, N.Y. – Fast-food workers and labour organizers are set to turn out in support of higher wages in cities across the country Thursday.

Organizers say walkouts are planned in 100 cities, with rallies set for another 100 cities. But it’s not clear what the actual turnout will be, how many of the participants are workers and what impact they’ll have on restaurant operations.

The actions would mark the largest showing yet over the past year. At a time when there’s growing national and international attention on economic disparities, labour unions, worker advocacy groups and Democrats are hoping to build public support to raise the federal minimum wage of $7.25, or about $15,000 a year for full-time work.

In New York City, about 100 protesters carrying signs, blowing whistles and beating drums marched into a McDonald’s at around 6:30 a.m.; one startled customer grabbed his food and fled as they flooded the restaurant, while another didn’t look up from eating and reading amid their chants of “We can’t survive on $7.25!”

Community leaders took turns giving speeches for about 15 minutes until the police arrived and ordered protesters out of the store. The crowd continued to demonstrate outside for about 45 more minutes while a handful of customers remained inside. A McDonald’s manager declined to be interviewed and asked that customers not be bothered.

Tyeisha Batts, a 27-year-old employee at Burger King, was among those taking part in the demonstrations planned throughout the day in New York City. She said she has been working at the location for about seven months and earns $7.25 an hour.

“My boss took me off the schedule because she knows I’m participating,” Batts said.

She said she hasn’t been retaliated against but that the manager warned that employees who didn’t arrive on time Thursday would be turned away for their shifts. Batts said she can get only between 10 and 20 hours of work a week because her employers don’t want to give her enough hours to qualify as a full-time employee. Under the health care overhaul, employers will be required to provide health care coverage to full-time employees.

Despite the growing attention on economic disparities, the push for higher pay in the fast-food industry faces an uphill battle. The industry competes aggressively on low prices and companies have warned that they would need to raise prices if wages were hiked. Most fast-food locations are also owned and operated by franchisees, which lets companies such as McDonald’s Corp., Burger King Worldwide Inc. and Yum Brands Inc. say that they don’t control worker pay.

However, labour advocates have pointed out that companies control many other aspects of the operations through their franchise agreements, including menus, suppliers and equipment.

Fast-food workers have historically been seen as difficult to unionize, given the industry’s high turnover rates. But the Service Employees International Union, which represents more than 2 million workers in health care, janitorial and other industries, has been providing considerable organizational and financial support to the push for higher pay over the past year.

Berlin Rosen, a political consulting and public relations firm based in New York City, also has been co-ordinating communications efforts and connecting organizers with media outlets.

The National Restaurant Association, an industry lobbying group, said most those protesting were union workers and that “relatively few” workers have participated in past actions. It called the demonstrations a “campaign engineered by national labour groups.”

In the meantime, Senate Majority Leader Harry Reid, D-Nev., has promised a vote on the wage hike by the end of the year. But the measure is not expected to gain traction in the House, where Republican leaders oppose it.

Supporters of wage hikes have been more successful at the state and local level. California, Connecticut and Rhode Island raised their minimum wages this year. Last month, voters in New Jersey approved a hike in the minimum to $8.25 an hour, up from $7.25 an hour.

]]>http://www.macleans.ca/news/world/walkouts-return-to-fast-food-nation/feed/0U.S. adds $504B in creative sector contributions to GDPhttp://www.macleans.ca/economy/economicanalysis/u-s-adds-504b-in-creative-sector-contributions-to-gdp/
http://www.macleans.ca/economy/economicanalysis/u-s-adds-504b-in-creative-sector-contributions-to-gdp/#commentsThu, 05 Dec 2013 11:25:25 +0000The Associated Presshttp://www2.macleans.ca/?p=446295WASHINGTON – Creative industries led by Hollywood account for about $504 billion, or at least 3.2 per cent of U.S. goods and services, the government said in its first official…

WASHINGTON – Creative industries led by Hollywood account for about $504 billion, or at least 3.2 per cent of U.S. goods and services, the government said in its first official measure of how the arts and culture affect the economy.

On Thursday, the U.S. Bureau of Economic Analysis and the National Endowment for the Arts will release the first-ever estimates of the creative sector’s contributions to U.S. gross domestic product based on 2011 data, the most recent figures available. GDP measures the nation’s production of goods and services.

Sunil Iyengar, the endowment’s research director, said the yardstick devised in partnership with the Bureau of Economic Analysis drew on figures from Hollywood, the advertising industry, cable TV production, broadcasting, publishing, performing arts and other areas. Now the nation’s creative sector will be measured annually, much as statisticians calculate the contribution of tourism, health care and other sectors to the nation’s economy.

“One of the challenges that’s always been there for economists and even lay people and certainly policy makers is to understand what is the arts’ value,” Ilyengar said. “Here’s a measurable, legitimate, rigorous way of tracking the contributions of the creative economy in the country.”

Analysts said they used preliminary numbers from 2011 and dating back to 1998, including both for-profit and non-profit industries in the arts and culture sector.

By comparison, the arts and culture sector outpaced the U.S. travel and tourism industry, which was 2.8 per cent of GDP in 2011, based on the federal estimate. That finding surprised even the researchers.

“Art and culture is a significant part of the U.S. economy — not just its contributions of ideas and creativity to the innovation economy but also as an important part of the labour force and our country’s GDP,” NEA Senior Deputy Chairman Joan Shigekawa said in a statement.

Hollywood movies and video services, the advertising industry and cable TV production were leading contributors to GDP in the creative sector, the researchers found, followed by broadcasting, publishing and the performing arts. On their own, the movie and video industries contributed $47 million in value-added to the economy in 2011.

The total output from arts and cultural production, another measure of economic activity, was $916 billion in 2011, analysts found. That includes $200 billion from creative development in advertising, $104 billion from arts education including college art departments, $100 billion from cable TV and $83 billion from movies and video services.

In the workforce, Hollywood and the video industry employed the most people, totalling 310,000 workers and $25 billion in compensation, according to the data. Museums and performing arts industries each employed about 100,000 people. In total, 2 million people worked in creative industries.

Researchers also analyzed the creative sector’s exports and the effect of the recession. Since 2007, the sector’s economic impact slumped and had not rebounded by 2011. Between 1998 and 2006, its share of GDP ranged from 3.5 to 3.7 per cent, but researchers found the arts suffered more than the overall economy during the Great Recession.

Exports of arts and culture have rebounded, though. A 10-year trend of deficits was reversed beginning in 2008, and by 2011, the U.S. exported $10.4 billion more arts and cultural commodities than it imported. Jewelry, silverware, movies and video services were the biggest exports. The country as a whole, though, has been running a trade deficit.

Analysts defined arts and cultural output based on creative artistic activity and the goods and services produced by it or used to support it. They also included the construction of buildings to house creative industries. Beyond entertainment and advertising, the analysis included independent artists, broadcasting, publishing of books, magazines and newspapers and design and architectural services.

The analysis will be updated each year, next in fall 2014 to include 2012 data.

WASHINGTON – Employers added a surprisingly strong 204,000 jobs in October despite the 16-day government shutdown, the Labor Department said, suggesting the U.S. economy may be sturdier than many had assumed.

Employers also did a lot more hiring in August and September than previously thought. Not only that, but activity at service companies and factories accelerated last month.

Unemployment rose to 7.3 per cent from 7.2 per cent in September. But that was probably because furloughed federal workers were temporarily counted as unemployed.

“It’s amazing how resilient the economy has been in the face of numerous shocks,” said Joe LaVorgna, chief U.S. economist at Deutsche Bank.

Analysts say the economy might be able to sustain its improvement.

They note that job gains of recent months, combined with modest increases in pay, could encourage more spending in coming months. Growing demand for homes should support construction. Auto sales are likely to stay strong because many Americans are buying cars after putting off big purchases since the recession struck nearly six years ago.

And with the nationwide average for gasoline at $3.21 a gallon (3.8 litres) — the lowest since December 2011 — consumers have a little more money to spend.

Job growth is a major factor for the Federal Reserve in deciding when to reduce its economic stimulus. The Fed has been buying bonds to keep long-term interest rates low and encourage borrowing and spending.

The Dow Jones industrial average surged 167 points, or 1.1 per cent, to close at a record high Friday after the jobs report came out.

But the yield on the 10-year Treasury note climbed to 2.75 per cent from 2.60 per cent late Thursday, indicating some investors are worried the Fed might pull back on its bond-buying soon.

For some employers outside the Beltway, the government shutdown scarcely mattered.

Bob Duncan, founder and chief executive of Dallas-based American Leather, said his company is on track for a third straight year of steady revenue gains. American Leather custom-builds sofas, recliners and other furniture for Crate and Barrel and many smaller chains.

Duncan has boosted his 400-member workforce by about 2 per cent in the past three months.

More important to Duncan has been a spate of remodeling by hotel chains, many of which had postponed upgrades until recently. Sales have risen as a result.

Economists differed over how the robust jobs report might influence the Fed. Some said it probably isn’t sufficient for the Fed to slow its $85-billion-a-month bond-buying program when it meets Dec. 17-18.

“The one month of job growth is not enough to allow them to pull the trigger,” said Patrick O’Keefe, director of economic research at CohnReznick.

But Paul Ashworth, chief U.S. economist at Capital Economics, disagreed, writing in a research note: “In our opinion, the data would justify the Fed reducing the pace of its asset purchases in December.”

The report showed that employers added an average of 202,000 jobs a month from August through October — up sharply from an average of 146,000 from May through July. And they added 45,000 more jobs in August and 15,000 more in September than the government previously estimated.

Private businesses added 212,000 jobs last month. That was the most since February. By contrast, federal government jobs fell by 12,000.

Many retailers are optimistic about consumers’ willingness to spend more during the holiday shopping season. Wal-Mart is hiring 55,000 seasonal workers, up from 50,000 last year.

One troubling detail in the report: The percentage of Americans working or looking for work fell to a 35-year low.

That figure may have been temporarily worsened by the shutdown. Even so, it suggests many Americans are discouraged about their prospects for finding a job.

Nearly 4.1 million Americans have been out of work for six months or more. That figure has tripled since the recession began in December 2007. The long-term unemployed represent more than a third of the 11.3 million people out of work.

About 1.3 million of the long-term jobless will lose their unemployment benefits by year’s end unless Congress renews an emergency benefits program, according to the National Employment Law Project. The emergency program provides up to 37 additional weeks of aid in most states on top of the 26 weeks that states typically dispense.

About 800,000 government workers were furloughed for all or part of the Oct. 1-16 shutdown.

Many were counted as unemployed for the purposes of calculating the unemployment rate. But because they were ultimately paid for their time off, the furloughed workers were still counted as employed by a separate government survey that calculates job growth.

]]>http://www.macleans.ca/news/world/u-s-businesses-unfazed-by-shutdown-stepped-up-hiring/feed/1How much did the 16-day shutdown affect hiring in U.S.?http://www.macleans.ca/news/world/how-much-did-the-16-day-shutdown-affect-hiring-in-u-s/
http://www.macleans.ca/news/world/how-much-did-the-16-day-shutdown-affect-hiring-in-u-s/#commentsFri, 08 Nov 2013 10:47:46 +0000The Associated Presshttp://www2.macleans.ca/?p=439108WASHINGTON – The big question ahead of tomorrow’s release of the October employment report: How much did the 16-day partial government shutdown affect hiring last month?
The shutdown may have…

WASHINGTON – The big question ahead of tomorrow’s release of the October employment report: How much did the 16-day partial government shutdown affect hiring last month?

The shutdown may have caused the unemployment rate to spike and hiring to slow. If so, economists expect those trends will be mostly reversed in November.

“The government shutdown has created a lot of noise and the numbers are going to be sloppy,” said Phil Orlando, chief equity strategist at Federated Investors.

Economists forecast that employers added 122,000 jobs in October, according to a survey by FactSet. That’s sharply lower than the 148,000 added in September. And it would be well below the average job gain of about 180,000 in the first nine months of this year.

The unemployment rate is projected to rise to 7.3 per cent from 7.2 per cent, the first rise since May. Some economists fear the shutdown could cause unemployment to jump to 7.6 per cent.

A large impact by the shutdown could make it difficult for economists to spot any underlying trends. They may place less weight than usual on October’s report. The Federal Reserve may also look past both October and November’s reports because of the distortions. That’s a big reason many economists expect Fed policymakers won’t pull back on their stimulus efforts until next March.

About 450,000 government workers were furloughed during the shutdown. Some employees at government contractors were also likely put on temporary layoff. And workers at restaurants, retail stores and other businesses located near national parks or federal buildings that were closed also likely cut back on staff.

Workers on temporary layoff would be classified as unemployed for purposes of the unemployment rate. That could cause the rate to jump.

But furloughed workers would still be counted as employed by the government’s survey that counts jobs. As a result, hiring may not look as bad as the unemployment rate.

Hiring was already weakening before the shutdown. Employers added an average of just 143,000 jobs from July through September. That’s down from an average of 182,000 from April through June and 207,000 in the first three months of the year.

Some recent figures suggest that businesses cut back further during the shutdown. Payroll provider ADP said last week that private companies added just 130,000 jobs last month, down from 145,000 in September. The ADP report doesn’t cover government agencies and wouldn’t be affected by government furloughs.

Separately, a survey by the Institute of Supply Management found that factories added jobs more slowly in October than September.

Other reports painted a more positive picture. Retail stores, shipping companies, and other services firms stepped up hiring in October, according to a separate ISM survey of service firms.

And the number of people seeking unemployment benefits has fallen back to pre-recession levels after four weeks of declines. Unemployment benefit applications are a proxy for layoffs. The steady decline suggests companies are cutting fewer jobs.

Economic growth accelerated in the July-September quarter to an annual rate of 2.8 per cent, the government said Thursday. That’s up from 2.5 per cent in the April-June quarter.

But greater restocking by businesses drove much of the increase, a trend that may not be sustainable. Consumers and businesses both cut back on spending over the summer.

]]>http://www.macleans.ca/news/world/how-much-did-the-16-day-shutdown-affect-hiring-in-u-s/feed/1A preview of the latest numbers on U.S. economic growthhttp://www.macleans.ca/general/a-preview-of-the-latest-numbers-on-u-s-economic-growth/
http://www.macleans.ca/general/a-preview-of-the-latest-numbers-on-u-s-economic-growth/#commentsThu, 07 Nov 2013 11:21:40 +0000The Associated Presshttp://www2.macleans.ca/?p=438721WASHINGTON – U.S. economic growth is likely languishing in the second half of 2013, held back by federal policies and a slowdown in hiring that has kept consumers from stepping…

WASHINGTON – U.S. economic growth is likely languishing in the second half of 2013, held back by federal policies and a slowdown in hiring that has kept consumers from stepping up spending.

Economists are hopeful that the impact from Washington may soon ease, clearing the way for stronger growth next year.

Analysts forecast that the economy grew at a 2 per cent annual rate in the July-September quarter, according to a survey by Factset. That would be down from an annual rate of 2.5 per cent in the April-June period. Most economists expect growth will stay at the tepid 2 per cent rate or weaken slightly in the October-December quarter.

The Commerce Department will release its first estimate for third-quarter growth at 8:30 a.m. EST Thursday. It was delayed one week because of the partial government shutdown.

The American consumer showed little enthusiasm for spending this summer. Higher taxes that took effect earlier this year have lowered take-home pay. And low- and middle-income workers’ wages are barely keeping pace with inflation. Consumer spending drives roughly 70 per cent of economic activity.

Federal spending cuts have also dampened growth. And the 16-day shutdown last month is expected to keep the economy from accelerating in the final three months of the year.

“The winds from government tax and spending actions were blowing very hard in the third quarter,” said Mark Zandi, chief economist at Moody’s Analytics.

Some areas of the economy performed well over the summer. Homes sales and construction remained robust, despite a rise in mortgage rates. Americans kept buying cars and trucks. And exports of autos and other manufactured goods rose, helped by improving economies overseas.

Still, hiring, a crucial driver of growth, has slowed. The economy added an average 143,000 jobs a month from July through September. That’s down from an average of 182,000 in April through June, and 207,000 during the first three months of the year. Without more jobs and hiring pay, consumer spending is likely to remain weak.

The shutdown will not affect third-quarter growth. But many analysts say it could cut more than half a percentage point from growth in the October-December quarter. The shutdown cost the U.S. economy $24 billion, according to Beth Ann Bovino, an economist at Standard & Poor’s.

Weaker growth at the end of the year would mean overall growth has slowed from 2012. Many analysts are forecasting growth for the full year of around 1.8 per cent, down a full percentage point from last year’s 2.8 per cent growth.

Many economists expect growth to pick up in 2014, perhaps to as much as 3 per cent. The economy should benefit from no additional tax hikes next year, though federal spending is expected to be tightened further. Housing should remain strong and businesses are likely to invest more in new equipment, said Sung Won Sohn, an economics professor at the Martin Smith School of Business at California State University.

“Businesses really need to raise productivity and the best way to do that is by employing new technology,” Sohn said.

Zandi predicts growth of 3 per cent in 2014, which would be the best rate in nine years. But that depends largely on Washington policymakers reaching a deal on the budget, no small feat given the increased partisanship that led to last month’s shutdown.

A House-Senate conference committee is trying to strike an agreement that will replace a temporary measure that funds the government through Jan. 15. There is also a need to lift the borrowing limit by Feb. 7.

“My working assumption is that lawmakers will come together and Washington will not derail the recovery,” Zandi said.

]]>http://www.macleans.ca/general/a-preview-of-the-latest-numbers-on-u-s-economic-growth/feed/0Hiring slows in September as U.S. employers add 148K jobshttp://www.macleans.ca/general/hiring-slows-in-september-as-u-s-employers-add-148k-jobs/
http://www.macleans.ca/general/hiring-slows-in-september-as-u-s-employers-add-148k-jobs/#commentsTue, 22 Oct 2013 13:14:29 +0000The Canadian Presshttp://www2.macleans.ca/?p=433669WASHINGTON – The U.S. economy added just 148,000 jobs in September, suggesting that employers held back on hiring before a 16-day partial government shutdown began Oct. 1.
Still, hiring last…

WASHINGTON – The U.S. economy added just 148,000 jobs in September, suggesting that employers held back on hiring before a 16-day partial government shutdown began Oct. 1.

Still, hiring last month was enough to lower the unemployment rate. The Labor Department said Tuesday that the rate fell to 7.2 per cent from 7.3 per cent in August. Unemployment remains historically high but is near a five-year low and is down from 7.9 per cent at the start of 2013.

Tuesday’s release of the September jobs report had been delayed 2 1/2 weeks by the shutdown, which likely further depressed economic growth and hiring. Temporary layoffs of federal workers and government contractors will probably lower October’s job gain.

Many economists say they won’t have a clear reading on hiring and unemployment until the November jobs report is issued in early December.

The economy has added an average of 143,000 jobs a month from July through September, weaker than the 182,000 added from April through June.

The department revised its estimates of job growth in July and August to show a net gain of 9,000 jobs. It said employers added 193,000 jobs in August, more than the 169,000 previously estimated. But it said just 89,000 were added in July, the fewest in more than a year and below the previously estimated 104,000.

Stock futures rose after the report was released at 8:30 a.m. Eastern time. The weaker job figures make it more likely that the Federal Reserve will maintain its level of bond purchases for the rest of this year. The bond purchases are intended to lower long-term interest rates and boost borrowing and spending.

High unemployment has discouraged many Americans from looking for work. The percentage of Americans working or looking for work remained at a 35-year low in September.

There were some positive aspects in the September jobs report. Several higher-paying industries added jobs at a healthy pace. Construction firms gained 20,000 positions. Government boosted payrolls by 22,000. Transportation and warehousing gained 23,400 jobs.

And average hourly pay ticked up 3 cents to $24.09. In the past year, hourly pay has increased 2.1 per cent, ahead of the 1.5 per cent inflation rate.

The deceleration in job growth was a key reason the Fed decided in September to hold off on slowing its $85-billion-a-month in bond purchases. Many economists think the lack of clean data will lead the Fed to put off any decision on the bond purchases until 2014.

Many economists say the shutdown cut $25 billion out of the economy and slowed growth to about a 2 per cent annual rate in the October-December quarter. That’s down from estimates before the shutdown that the economy would expand at a 2.5 per cent annual rate.

But growth will likely be a bit higher in the first three months of next year, as consumers and businesses make purchases and investments that were delayed during the shutdown.

]]>http://www.macleans.ca/general/hiring-slows-in-september-as-u-s-employers-add-148k-jobs/feed/1Shutdown over, when will Janet Yellen dial back the Fed’s easy money policy?http://www.macleans.ca/economy/business/shutdown-over-when-will-janet-yellen-dial-back-the-feds-easy-money-policy/
http://www.macleans.ca/economy/business/shutdown-over-when-will-janet-yellen-dial-back-the-feds-easy-money-policy/#commentsSat, 19 Oct 2013 12:29:13 +0000Colin Campbellhttp://www2.macleans.ca/?p=433106There’s nothing normal about the U.S. economy these days

Before the Great Recession, Alan Greenspan, America’s rock-star central banker, was revered for his ability to move markets with the tone of his voice. But even he would envy the influence of the next Federal Reserve chief. President Obama’s new nominee, Janet Yellen, if confirmed, stands to inherit an increasingly powerful Fed at a historic moment. Her first task will be to address one of the most important and divisive questions facing the country: to taper—and thereby dial back the easy-money policies that have their roots in the Greenspan era—or not to taper?

Critics worry Yellen will continue the Fed’s policy of ultra-low interest rates and its $85-billion-a-month bond-buying stimulus program. As a vice-chair of the Fed, Yellen has been an architect and key supporter of these policies. As her opponents see it, the strategy is stoking inflation and asset bubbles that could ruin the economy. The website NoOnYellen.com, headed by a New York hedge fund manager, labelled her “a threat to the American standard of living.” Canada’s Finance Minister Jim Flaherty urged the U.S. to ditch its stimulus program “as quickly as they can.”

The trouble with the pro-taper argument is that inflation, despite the five years spent pouring trillions into the economy, is almost non-existent. The U.S. Consumer Price Index was up just 0.1 per cent in August. America, as Yellen has argued in the past, has more immediate problems, such as weak job growth. Unemployment has fallen to 7.3 per cent, from 10 per cent in 2009. But that’s far from the four and five per cent that were the norm in decades before the recession. Also missing? Consumer confidence, which, last week, dipped to a nine-month low. Yellen has described it as an important tailwind—“the faith most of us have . . . that recessions are temporary and that the economy will soon get back to normal.”

But there’s nothing normal about the U.S. economy these days. Five years after the recession, growth is barely topping two per cent. Meanwhile, America’s soaring debt has created a whole new crisis. Quantitative easing was a desperate measure for desperate times. Has enough changed to abandon it? Yellen’s answer will likely be no. It will need to happen, but too much evidence suggests now isn’t the right time.

]]>http://www.macleans.ca/economy/business/shutdown-over-when-will-janet-yellen-dial-back-the-feds-easy-money-policy/feed/7U.S. middle class incomes down over six per cent since 2000http://www.macleans.ca/economy/business/u-s-middle-class-incomes-down-over-six-per-cent-since-2000/
http://www.macleans.ca/economy/business/u-s-middle-class-incomes-down-over-six-per-cent-since-2000/#commentsSun, 29 Sep 2013 14:00:14 +0000Econowatchhttp://www2.macleans.ca/?p=427248Our pick for econ chart of the month

]]>http://www.macleans.ca/economy/business/u-s-middle-class-incomes-down-over-six-per-cent-since-2000/feed/2Senate Democrats may shorten stopgap spending billhttp://www.macleans.ca/news/senate-democrats-may-shorten-stopgap-spending-bill/
http://www.macleans.ca/news/senate-democrats-may-shorten-stopgap-spending-bill/#commentsTue, 24 Sep 2013 15:05:07 +0000The Associated Presshttp://www2.macleans.ca/?p=425993WASHINGTON – The Senate’s No. 2 Democrat says the chamber may come out in favour of a smaller patch for bankrolling the government than the one envisioned in a temporary…

WASHINGTON – The Senate’s No. 2 Democrat says the chamber may come out in favour of a smaller patch for bankrolling the government than the one envisioned in a temporary spending bill passed by the Republican-dominated House.

The idea, says Sen. Dick Durbin of Illinois, would be to get Congress working sooner than mid-December on a more sweeping piece of legislation — known as an omnibus spending bill — that he hopes would reverse some automatic spending cuts known as sequestration.

The chief focus of the stopgap spending bill that narrowly cleared the House would be to avoid a partial government shutdown when the budget year ends next week. Tea party-leaning members of the House GOP caucus successfully attached language that would strip funding for President Barack Obama’s health care program.

]]>http://www.macleans.ca/news/senate-democrats-may-shorten-stopgap-spending-bill/feed/0House GOP offers smaller budget cuts on debt increase measure than in 2011 battlehttp://www.macleans.ca/news/house-gop-offers-smaller-budget-cuts-on-debt-increase-measure-than-in-2011-battle/
http://www.macleans.ca/news/house-gop-offers-smaller-budget-cuts-on-debt-increase-measure-than-in-2011-battle/#commentsMon, 23 Sep 2013 23:01:02 +0000The Associated Presshttp://www2.macleans.ca/?p=425905WASHINGTON – House Republicans are far less ambitious this week in their demands for spending cuts to erase new debt issued to pay the government’s bills than they were during…

WASHINGTON – House Republicans are far less ambitious this week in their demands for spending cuts to erase new debt issued to pay the government’s bills than they were during a budget battle two years ago.

The list of cuts under consideration now tallies up to a fraction of the almost $1 trillion in additional borrowing that would be permitted under a GOP proposal for enabling the government to pay its bills through December of next year.

Two years ago, House Speaker John Boehner, R-Ohio, insisted on spending cuts totalling $2.1 trillion over a decade as the price to meet President Barack Obama’s demand for a like-sized increase in the government’s borrowing cap, also known as the debt ceiling.

Those cuts involved tighter “caps” on agency operating budgets as well as the automatic, across-the-board cuts known as sequestration triggered by the failure of a deficit “supercommittee” to reach a deal.

The problem now is that there isn’t a roster of big, politically palatable cuts ready to go. Instead, Republicans have put together a grab bag of smaller savings ideas, like higher pension contributions for federal workers, higher premiums for upper-income Medicare beneficiaries, caps on medical malpractice verdicts and reduced payments to hospitals that treat more poor people than average.

A leading set of proposals comes from a House GOP leadership office and was circulating on Washington’s K Street lobbying corridor on Monday. It includes a plan to increase pension contributions of federal civilian workers by up to 5 percentage points and lowering the federal match accordingly, which could help defray the deficit by up to $84 billion over a decade. Another, to block immigrants in the country illegally from claiming the child tax credit would save just $7 billion over the same period. Eliminating the Social Services Block Grant, a flexible funding stream for states to help with day care, Meals on Wheels, and drug treatment facilities, would save less than $2 billion a year.

Taken together, these proposals and others could cut spending by perhaps $200 billion over the coming decade. While GOP aides say details aren’t set, House leaders are looking at an increase in the current $16.7 trillion debt ceiling sufficient to cover the government’s bills until the beginning of 2015. According to calculations by the Bipartisan Policy Center think-tank in Washington, that would require raising the borrowing cap by almost $1 trillion.

Boehner insists that any increase in the borrowing cap be matched by budget cuts and other reforms to produce savings of an equal amount, though not on a dollar-for-dollar basis over 10 years like in 2011. It’s a somewhat nebulous standard because of the difficulty in quantifying how much any given “reform” is worth.

Obama says he won’t negotiate concessions as the price for authority to continue borrowing to cover bills already incurred and promises already made and has demanded a “clean” debt limit increase with no conditions attached.

The looming debt limit showdown is separate from the “defund Obamacare” fight occupying the Senate this week in the face of Oct. 1 deadline for completing a temporary spending bill and a averting a partial government shutdown.

GOP lawmakers and aides say the debt ceiling measure will be paired with a one-year delay in requiring people to buy health insurance under Obama’s Affordable Care Act or face federal fines. They also plan to attach to it a tax reform package lowering rates and closing loopholes, an increase in offshore oil leases and approval of the Keystone XL pipeline.

Boehner views tax reform and the Keystone pipeline as economy boosters that will produce new government revenues exceeding any debt limit increase. A boost in growth domestic product (GDP) of just one-tenth of 1 percentage point, for example, would increase the government revenues by more than $300 billion over a decade according to the Congressional Budget Office.

“While we’re still working on the details, the proposal will comply with the Boehner rule in terms of reducing the deficit,” said Boehner spokesman Michael Steel.

Still, the proposals pale in comparison to ideas in the non-binding GOP budget plan passed earlier this year, which promised a balanced budget in 10 years that was possible only with severe cuts to Medicaid, food stamps and domestic programs like health research, housing, education and others. The GOP budget promised $4.6 trillion in cuts over a decade but didn’t give a lot of specifics about how deeply many programs would have to be cut.

Other proposals listed in the GOP leadership’s list of options, include:

—Eliminating the authority of the government to charge a bailout fee to big banks under the Dodd-Frank financial oversight law. The fee could only be charged it there’s a major bank failure. The document claims $23 billion in savings.

WASHINGTON – Even before a budget deadline arrives, leaders from both parties are blaming each other — and some Republicans are criticizing their own — for a government shutdown many are treating as inevitable.

The top Democrat in the House says Republicans are “legislative arsonists” who are using their opposition to a sweeping health care overhaul as an excuse to close government’s doors. A leading tea party antagonist in the Senate counters that conservatives should use any tool available to stop the Affordable Care Act from taking hold. President Bill Clinton’s labour secretary says the GOP is willing “to risk the entire system of government to get your way,” while the House speaker who oversaw the last government shutdown urged fellow Republicans to remember “this is not a dictatorship.”

The unyielding political posturing on Sunday comes one week before Congress reaches an Oct. 1 deadline to dodge any interruptions in government services. While work continues on a temporary spending bill, a potentially more devastating separate deadline looms a few weeks later when the government could run out of money to pay its bills.

“This is totally irresponsible, completely juvenile and, as I called it, legislative arson. It’s just destructive,” House Democratic Leader Nancy Pelosi said in an interview that aired Sunday.

The Republican-led House on Friday approved legislation designed to wipe out the 3-year-old health care law that President Barack Obama has vowed to preserve. But the House’s move was more a political win than a measure likely to be implemented.

Across the Capitol, Senate Democratic Leader Harry Reid said he would keep the health law intact despite Republicans’ attempts, in his words, “to take an entire law hostage simply to appease the tea party anarchists.”

One of those tea party agitators, Sen. Ted Cruz of Texas, showed little sign on Sunday that he cared about the uphill climb to make good on his pledge to derail the health care law over Obama’s guaranteed veto.

“I believe we should stand our ground,” said Cruz, who already was trying to blame Obama and his Democratic allies if the government shuts down.

Sen. Claire McCaskill, a Missouri Democrat, said Cruz’s efforts were destructive and self-serving as Cruz eyes a White House campaign.

“I cannot believe that they are going to throw a tantrum and throw the American people and our economic recovery under the bus,” she said.

“This is about running for president with Ted Cruz. This isn’t about meaningful statesmanship,” she added later.

The wrangling over the budget comes as lawmakers consider separate legislation that would let the United States avoid a first-ever default on its debt obligations. House Republicans are planning legislation that would attach a 1-year delay in the health care law in exchange for ability to increase the nation’s credit limit of $16.7 trillion.

Obama, speaking to political allies on Saturday evening, showed little patience for the GOP efforts to undermine his legislative accomplishment by either avenue.

“We will not negotiate over whether or not America should keep its word and meet its obligations,” Obama told the Congressional Black Caucus Foundation dinner. “We’re not going to allow anyone to inflict economic pain on millions of our own people just to make an ideological point.”

Congress doesn’t seem eager to help Obama, although there are deep divides — both between parties and within them — over who deserves blame.

Rep. Tom Graves, R-Ga., said the goal was to defund the president’s health care legislation for at least one more year if not forever.

“We do have eight days to reach a resolution on this, and I propose an idea that kept the government operating and opened for an entire year while delaying and defunding Obamacare for a year so that we could work out those differences,” Graves said.

Former House Speaker Newt Gingrich, whose faceoff with Clinton led to government shutdowns that inflicted significant damage on the GOP and helped resurrect the then-president’s political fortunes in time for his 1996 re-election bid, said his GOP colleagues should not yield.

“This is not a dictatorship. Under our constitution, there should be a period of tension and there should be a compromise on both sides,” Gingrich said.

Robert Reich, who was Clinton’s labour secretary, said that works only if both parties are willing to negotiate.

“Sorry, under our constitutional system you’re not allowed to risk the entire system of government to get your way,” Reich said.

It is likely that when the House legislation arrives in the Senate, Democrats there will strip off the health care defunding mechanism. Democrats plan to send back to the House a bill that prevents disruptions in government services but not the health provision they championed.

Cruz, however, said Senate Republicans cannot allow that to happen and should mount every procedural hurdle available. Cruz, who pushed lawmakers to tie a budget bill with health care hurdles, said Republicans should mount a procedural roadblock that would require 60 votes for any changes to the House bill.

“It’s not a tactic that we can actually carry out and be successful,” said Sen. Tom Coburn, R-Okla. “The answer now in the Senate, by those who propose this strategy, is to filibuster the very bill they said they wanted.”

Pelosi spoke to CNN’s “State of the Union.” Cruz and McCaskill were interviewed on “Fox News Sunday.” Reich, Gingrich and Graves appeared on ABC’s “This Week.” Coburn was on CBS’ “Face the Nation.”

]]>http://www.macleans.ca/economy/economicanalysis/budget-wrangling-and-finger-pointing-in-overdrive-as-oct-1-deadline-looms/feed/1U.S. builders break ground on most single-family homes in 6 monthshttp://www.macleans.ca/news/u-s-builders-break-ground-on-most-single-family-homes-in-6-months/
http://www.macleans.ca/news/u-s-builders-break-ground-on-most-single-family-homes-in-6-months/#commentsWed, 18 Sep 2013 13:15:44 +0000The Associated Presshttp://www2.macleans.ca/?p=423810WASHINGTON – U.S. builders started work in August on the most single-family homes in six months and requested permits to build even more in future months. The figures suggest housing…

WASHINGTON – U.S. builders started work in August on the most single-family homes in six months and requested permits to build even more in future months. The figures suggest housing remains a driver of economic growth despite higher mortgage rates.

Builders increased construction of single-family homes 7 per cent last month to a seasonally adjusted annual rate of 628,000, the Commerce Department said Wednesday. That’s the fastest rate since February. And they sought 627,000 permits for future single-family homes, 3 per cent more than July and the best pace since May 2008.

Overall, builders broke ground last month on houses and apartments at an annual rate of 891,000. That’s up from a rate of 883,000 the previous month. The gain in single-family homes was offset by a decline in volatile demand for apartments.

Total permits fell to a rate of 918,000 from 954,000 in July, also because of a decline in apartments.

The longer-term trend is also positive: housing starts are 19 per cent higher than a year ago.

The housing market has been recovering steadily over the past year, helped by lower mortgage rates and steady job growth. The gains have contributed to economic growth at a time when consumers and businesses have spent more cautiously.

But mortgage rates have risen more than a full percentage point since early May. Some economists say higher rates may be starting to slow the recovery’s momentum. In July, new-home sales plummeted to the lowest level in nine months.

Mortgage rates could rise even further if the Federal Reserve decides later Wednesday to slow its $85 billion a month bond purchase program. Most economists expect the Fed will announce that it will reduce its purchases by $10 billion. The bond purchases have kept long-term interest rates low.

The average fixed rate on a 30-year mortgage was 4.57 per cent last week. That’s near the highest level in two years. Still, rates remain low by historical standards. And most economists expect the housing recovery to withstand the increase in borrowing costs.

Homebuilder confidence remained at its highest level in nearly eight years in September, according to a survey by the National Association of Home Builders. But builders are starting to worry that sales may slow in the coming months if rates keep rising, the survey found.

Though new homes represent only a fraction of the housing market, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to NAHB statistics.

]]>http://www.macleans.ca/news/u-s-builders-break-ground-on-most-single-family-homes-in-6-months/feed/0Obama takes economy message to CEOs, part of weeklong focus on coming fiscal fighthttp://www.macleans.ca/news/obama-takes-economy-message-to-ceos-part-of-weeklong-focus-on-coming-fiscal-fight/
http://www.macleans.ca/news/obama-takes-economy-message-to-ceos-part-of-weeklong-focus-on-coming-fiscal-fight/#commentsWed, 18 Sep 2013 11:43:06 +0000The Associated Presshttp://www2.macleans.ca/?p=423778WASHINGTON – President Barack Obama, facing a budget showdown with Congress, is pushing his economic agenda to some of the nation’s top corporate executives while cautioning Republicans not to precipitate…

WASHINGTON – President Barack Obama, facing a budget showdown with Congress, is pushing his economic agenda to some of the nation’s top corporate executives while cautioning Republicans not to precipitate a government shutdown or an unprecedented debt default.

Obama was to speak to the Business Roundtable on Wednesday, drawing attention to a modest economic recovery that he says would be hurt if Republican lawmakers can’t work with Democrats to pass a stopgap spending measure to keep the government operating after the fiscal year ends Sept. 30.

After that, Congress must find a way to raise the current $16.7 trillion borrowing limit, expected to hit its ceiling sometime in mid- to late October.

Obama has been using the fifth anniversary of the nation’s financial near-meltdown this week to make his case, delivering an economic address at the White House on Monday and scheduling a trip to a Ford Motor Co. plant near Kansas City, Mo., on Friday to illustrate the comeback of the auto industry.

Republicans in the GOP-controlled House want to tie continued spending to defunding or delaying Obama’s signature health care law.

The White House said Obama would specifically ask the corporate leaders to deliver a message to Congress that a default would hurt businesses. Obama was expected to blame what the White House calls “extreme members of the Republican Party” for the threats.

The White House said Obama would note that during the last debt ceiling fight in 2011, the brinkmanship caused the stock market to plunge, prompted Standard & Poor’s to downgrade the U.S. credit rating and resulted in a plunge in consumer confidence.

Obama insists he will not negotiate to raise the debt ceiling, though the talks in 2011 yielded a deficit-cutting bargain. The White House especially rejects any attempt to defund or delay the health care law.

Republican leaders note that it’s not unusual for debt ceiling increases to be tied to budget deals, though several borrowing limits during past administrations have been raised with few or no strings attached.

“No one is threatening to default,” said Brendan Buck, a spokesman for House Speaker John Boehner, R-Ohio. “The president only uses these scare tactics to avoid having to show the courage needed to deal with our coming debt crisis. Every major deficit deal in the last 30 years has been tied to a debt limit increase, and this time should be no different.”

WASHINGTON – A new government study says that federal health care and retirement programs threaten to overwhelm the federal budget and harm the economy in coming decades unless Washington finds the political will to restrain their inexorable growth. The long-term pressures promise to quickly reverse recent improvements in the deficit.

Tuesday’s Congressional Budget Office report says that government spending on health care and Social Security would double relative to the size of the economy in 25 years and that spending on other programs like defence, transportation and education would decline to its smallest level by the same measure since the Great Depression.

The share of federal spending devoted to health care would rise from 4.6 per cent of gross domestic product today to 8 per cent in 2038; spending on Social Security would rise as well, as the number of people receiving benefits rises to more than 100 million in 25 years, compared with 57 million people taking benefits now.

The rise in costs for the popular benefits programs has been apparent for many years and budget hawks says it’s best to tackle their unsustainable growth immediately rather than be forced to make more draconian cuts later. But Washington — whether government is divided or controlled by one party — has been unable to agree on ways to curb the growth of these programs.

Democrats prefer a mix of tax increases and relatively small cuts in Medicare, Social Security and other spending. Republicans have proposed more dramatic long-term cuts to Medicare but are dead set against further taxes, especially after President Barack Obama won rate increases on upper-bracket earners in January.

“The unsustainable nature of the federal government’s current tax and spending policies presents lawmakers and the public with difficult choices,” CBO said. “To put the federal budget on a sustainable path for the long term, lawmakers would have to make significant changes to tax and spending policies.”

Obama inherited an economy in the worst recession since the Depression, which was largely responsible for the spike in the deficit above $1 trillion annually during his first term. The agency estimated in May that the deficit for the soon-to-be-completed 2013 fiscal year would dip to $642 billion.

Most economists measure deficits and debt in relation to the size of the economy. By that measure, the debt would actually decline slightly under the current trajectory over the next five years, dropping from 73 per cent of the economy now to 68 per cent in 2018. But the ongoing retirement of the Baby Boom generation would contribute to rising debt after that, ultimately bringing the debt to 108 per cent of GDP by 2038, with 8 percentage points of that figure caused by the economic drag the debt would have on the economy.

The report is one of a series by the agency and other budget watchdogs warning that spiraling long-term debt threatens to crowd out private investment, raise interest rates and limit Washington’s ability to respond to a financial crisis.

The report comes as a divided Congress and Obama need to deal with two important problems: keeping the government funded beyond the Oct. 1 start of the 2014 budget year and permitting the government to borrow more money to pay those bills. Republicans hope to use the must-pass stopgap spending and debt limit legislation to derail “Obamacare” and force further spending curbs.

Rep. Paul Ryan, R-Wis., and chairman of the House Budget Committee, said: “In the weeks ahead, I hope we work together to heed CBO’s warning. We must provide relief to the families we serve. We should start by delaying Obamacare and paying down the debt to help grow the economy.”

WASHINGTON – President Barack Obama is seeking credit for an economic turnaround, using the fifth anniversary of the collapse of the Lehman Brothers investment bank to highlight signs of recovery.

Obama was scheduled to address the state of the U.S. economy Monday accompanied by a selection of Americans who the White House says have benefited from the administration’s policies. The event marks the start of a week-long focus on the economy after a month of preoccupation with the crisis in Syria.

For Obama, the anniversary of Lehman’s bankruptcy in 2008, which marked the beginning of the global financial crisis and played havoc with an economy already in recession, is an opportunity to confront public skepticism about his stewardship of the economy and to put down his marker for budget clashes with Congress in the weeks ahead.

The White House’s National Economic Council on Sunday issued a report detailing economic policies that it says have helped shore up the financial system and put the economy on a path toward growth. Those steps range from a plan to shore up the financial industry and bail out auto giants General Motors and Chrysler, to an $800 billion stimulus bill to sweeping new bank regulations.

Gene Sperling, a top Obama adviser and director of the National Economic Council, said Obama’s policies “have performed better than virtually anyone at the time predicted.”

“We came in, stabilized the situation,” Obama told ABC’s “This Week” in an interview broadcast Sunday. He cited 42 months in a row of growth, 7 1/2 million jobs created and a revitalized auto industry.

But the public is not convinced that the economy is on the mend. Only one-third say the economic system is more secure now than in 2008, and 52 per cent say they disapprove of Obama’s handling of the economy, according to a Pew Research Center poll. There is still plenty of pain to justify their pessimism.

Despite job growth, the unemployment rate remains high at 7.3 per cent. Though the rate has fallen, one of the reasons is because some people have dropped out of the labour force and no longer are counted as job seekers. The share of unemployed workers who have been unemployed for more than six months is more than double what it was in 2007 before the recession began. And the income gap between the very rich and the rest of the population is the biggest since 1928.

What’s more, some banks that received government aid because they were deemed “too big to fail” are now bigger than they were in 2008, although they are smaller as a share of the economy than the largest banks in other big economies. Three years after Obama signed a sweeping overhaul of lending and high-finance rules, execution of the law is behind schedule.

Some conservative Republicans say they will only extend current spending levels or increase the debt ceiling if Obama delays putting in place his health care law, a condition Obama has flatly rejected. Others say the scheduled spending cuts should stay in place to reduce the deficit.

WASHINGTON – President Barack Obama is marking the fifth anniversary of the Lehman Brothers collapse by trying to lay claim to an economic turnaround and warning Republicans against moves that he contends would risk a backslide.

His message to the GOP: Don’t oppose raising the nation’s debt limit, don’t threaten to close down the government in a budget fight, and don’t push to delay the health care law or starve it of federal money.

The economic emphasis, after weeks devoted to the Syrian crisis, begins coming into focus in a series of events kicked off by a Rose Garden speech Monday. It’s a determined effort to confront public skepticism about his stewardship of the economy and to put down his marker for budget clashes with Congress in the weeks ahead.

The White House argues that a better capitalized and better regulated financial sector is extending more credit, fueling an economy now able to withstand headwinds such as spending cuts and tax increases.

“You can draw this straight line from the health of the financial system to the ways the financial system impacts the economy,” said Jason Furman, the chairman of Obama’s Council of Economic Advisers.

Obama can point to a growing economy, rising housing prices, 35 straight months of hiring, a rebounding stock market and other signs of recovery.

Five years after the federal government stepped in and infused banks with $245 billion in taxpayer money to avert a financial meltdown, the government has been paid back nearly in full.

Sunday is the fifth anniversary of Lehman’s bankruptcy, which was the largest in U.S. history. The firm’s demise marked the beginning of the global financial crisis and was a major catalyst of the financial meltdown.

“We’ve put more people back to work, but we’ve also cleared away the rubble of crisis and laid the foundation for stronger and more durable economic growth,” Obama said during his recent trip to Russia.

“And as Congress takes up important decisions in the coming months, I’m going to keep making the case for the smart investments and fiscal responsibility that keep our economy growing, creates jobs and keeps the U.S. competitive. That includes making sure we don’t risk a U.S. default over paying bills we’ve already racked up.”

Obama intends to highlight that progress to economists and other guests at the White House on Monday, and his National Economic Council is set to release a report detailing the economic advances.

Obama planned to discuss the economy as part of an interview airing Sunday on ABC’s “This Week” and scheduled a speech Wednesday to the Business Roundtable, an association of CEOs from the biggest U.S. companies.

But the public is not convinced that the economy is on the mend. Only one-third say the economic system is more secure now than in 2008, and 52 per cent say they disapprove of Obama’s handling of the economy, according to a Pew Research Center poll. There is still plenty of pain to justify their pessimism.

Despite job growth, the unemployment rate remains high at 7.3 per cent. Though the rate has fallen, one of the reasons is because some people have dropped out of the labour force and no longer are counted as job seekers. The income gap between the very rich and the rest of the population is the biggest since 1928.

“We have genuinely made progress. We genuinely have more work to do,” said Furman.

What’s more, some banks that received government aid because they were deemed “too big to fail” are now bigger than they were in 2008, but they are smaller as a share of the economy than the largest banks in other big economies. Three years after Obama signed a sweeping overhaul of lending and high-finance rules, execution of the law is behind schedule.

“We should not accept a financial system that allows the biggest banks to emerge from a crisis in record-setting shape while ordinary Americans continue to struggle,” said Sen. Elizabeth Warren, a Massachusetts Democrat who watched over the bank bailout as head of a special oversight panel.

This glass-half-empty-glass-half-full state of the economy has produced competing story lines about the role Obama’s administration has played in getting the country to this point. Did Obama’s approach validate the philosophy of spending your way out of crisis or did some of his policies actually slow the recovery?

The bank bailout, which started during the closing weeks of President George W. Bush’s term, was highly unpopular but is generally credited with stabilizing the financial system.

Obama continued the program and ultimately used some of the $700 billion that had been allocated to prop up the financial system to bail out General Motors and Chrysler, a move generally accepted as a success.

Still, voters in 2009 and 2010 rebelled, and the bank bailout vote cost some lawmakers their seats.

Former Rep. Barney Frank, the Massachusetts Democrat who headed the House Financial Services Committee, noted the other day that “you don’t get credit for disaster averted.”

Some conservative economists say the $800 billion stimulus Obama pushed for in 2009 initially did help reverse the plunging economy, even though some liberals insist the dollar amount should have been even bigger.

But much of the credit for the current recovery, tepid as it may be, goes to the Federal Reserve. It has held short-term interests rates near zero and has undertaken a massive bond purchase program that has supported spending, lifted stocks and kept home mortgage rates at near record lows.

“The Fed was the single biggest policy move in the crisis. No question about it,” said Douglas Holtz-Eakin, a former director of the Congressional Budget Office and top economic adviser to Republican Sen. John McCain’s 2008 presidential campaign.

The question that defines the debate is not so much whether government steps helped, but whether it could have done more to accelerate the recovery. Many Democrats and liberal-leaning economists say the economy needed more stimulus. But Republicans, worried about skyrocketing deficits, cut back on spending instead.

Now many say the economy needs long term measures that would reduce spending on entitlement programs such as Medicare and Social Security and that would overhaul and simplify the tax system.

“We’ve done too much temporary targeted intervention, we’re passed the time for that,” said Holtz-Eakin, who now heads the American Action Forum, a conservative public policy institute. “It’s no longer 2008 when things were falling like a rock. It’s time to have long-term growth policies. We don’t have them.”

Obama and Republicans are at a stalemate, however.

Obama has proposed some changes that would reduce spending on Social Security and Medicare, including an adjustment that would lower cost-of-living adjustments. But he has insisted on more tax revenue by closing what he says are loopholes for the rich, a step Republicans won’t take.

The impasse has revived threats of a government shutdown after the current budget year ends Sept. 30 and, more economically damaging, a default if Congress can’t agree to raise the debt ceiling later in October.

Some conservative Republicans say they will only extend current spending levels or increase the debt ceiling if Obama delays putting in place his health care law, a condition Obama has flatly rejected.

House Speaker John Boehner, R-Ohio, has tried to keep the focus on spending reductions, even as some on his right insist on defunding or delaying the health care law.

“This year the federal government will bring in more revenue than any year in the history of our government, and yet we will still have nearly a $700 billion budget deficit,” he said. “We have a spending problem. It must be addressed, period.”

WASHINGTON – President Barack Obama is marking the fifth anniversary of the Lehman Brothers collapse by trying to lay claim to an economic turnaround and warning Republicans against moves that he contends would risk a backslide.

His message to the GOP: don’t oppose raising the nation’s debt limit, don’t threaten to close down the government in a budget fight, and don’t push to delay the health care law or starve it of federal money.

The economic emphasis, after weeks devoted to the Syrian crisis, begins coming into focus in a series of events kicked off by a Rose Garden speech Monday. It’s a determined effort to confront public skepticism about his stewardship of the economy and to put down his marker for budget clashes with Congress in the weeks ahead.

The White House argues that a better capitalized and better regulated financial sector is extending more credit, fueling an economy now able to withstand headwinds such as spending cuts and tax increases.

“You can draw this straight line from the health of the financial system to the ways the financial system impacts the economy,” said Jason Furman, the chairman of Obama’s Council of Economic Advisers.

Obama can point to a growing economy, rising housing prices, 35 straight months of hiring, a rebounding stock market and other signs of recovery.

Five years after the federal government stepped in and infused banks with $245 billion in taxpayer money to avert a financial meltdown, the government has been paid back nearly in full.

Sunday is the fifth anniversary of Lehman’s bankruptcy, which was the largest in U.S. history. The firm’s demise marked the beginning of the global financial crisis and was a major catalyst of the financial meltdown.

“We’ve put more people back to work, but we’ve also cleared away the rubble of crisis and laid the foundation for stronger and more durable economic growth,” Obama said during his recent trip to Russia.

“And as Congress takes up important decisions in the coming months, I’m going to keep making the case for the smart investments and fiscal responsibility that keep our economy growing, creates jobs and keeps the U.S. competitive. That includes making sure we don’t risk a U.S. default over paying bills we’ve already racked up.”

Obama intends to highlight that progress to economists and other guests at the White House on Monday, and his National Economic Council is set to release a report detailing the economic advances.

Obama planned to discuss the economy as part of an interview airing Sunday on ABC’s “This Week” and scheduled a speech Wednesday to the Business Roundtable, an association of CEOs from the biggest U.S. companies.

But the public is not convinced that the economy is on the mend. Only one-third say the economic system is more secure now than in 2008, and 52 per cent say they disapprove of Obama’s handling of the economy, according to a Pew Research Center poll. There is still plenty of pain to justify their pessimism.

Despite job growth, the unemployment rate remains high at 7.3 per cent. Though the rate has fallen, one of the reasons is because some people have dropped out of the labour force and no longer are counted as job seekers. The income gap between the very rich and the rest of the population is the biggest since 1928.

“We have genuinely made progress. We genuinely have more work to do,” said Furman.

What’s more, some banks that received government aid because they were deemed “too big to fail” are now bigger than they were in 2008, but they are smaller as a share of the economy than the largest banks in other big economies. Three years after Obama signed a sweeping overhaul of lending and high-finance rules, execution of the law is behind schedule.

“We should not accept a financial system that allows the biggest banks to emerge from a crisis in record-setting shape while ordinary Americans continue to struggle,” said Sen. Elizabeth Warren, a Massachusetts Democrat who watched over the bank bailout as head of a special oversight panel.

This glass-half-empty-glass-half-full state of the economy has produced competing story lines about the role Obama’s administration has played in getting the country to this point. Did Obama’s approach validate the philosophy of spending your way out of crisis or did some of his policies actually slow the recovery?

The bank bailout, which started during the closing weeks of President George W. Bush’s term, was highly unpopular but is generally credited with stabilizing the financial system.

Obama continued the program and ultimately used some of the $700 billion that had been allocated to prop up the financial system to bail out General Motors and Chrysler, a move generally accepted as a success.

Still, voters in 2009 and 2010 rebelled, and the bank bailout vote cost some lawmakers their seats.

Former Rep. Barney Frank, the Massachusetts Democrat who headed the House Financial Services Committee, noted the other day that “you don’t get credit for disaster averted.”

Some conservative economists say the $800 billion stimulus Obama pushed for in 2009 initially did help reverse the plunging economy, even though some liberals insist the dollar amount should have been even bigger.

But much of the credit for the current recovery, tepid as it may be, goes to the Federal Reserve. It has held short-term interests rates near zero and has undertaken a massive bond purchase program that has supported spending, lifted stocks and kept home mortgage rates at near record lows.

“The Fed was the single biggest policy move in the crisis. No question about it,” said Douglas Holtz-Eakin, a former director of the Congressional Budget Office and top economic adviser to Republican Sen. John McCain’s 2008 presidential campaign.

The question that defines the debate is not so much whether government steps helped, but whether it could have done more to accelerate the recovery. Many Democrats and liberal-leaning economists say the economy needed more stimulus. But Republicans, worried about skyrocketing deficits, cut back on spending instead.

Now many say the economy needs long term measures that would reduce spending on entitlement programs such as Medicare and Social Security and that would overhaul and simplify the tax system.

“We’ve done too much temporary targeted intervention, we’re passed the time for that,” said Holtz-Eakin, who now heads the American Action Forum, a conservative public policy institute. “It’s no longer 2008 when things were falling like a rock. It’s time to have long-term growth policies. We don’t have them.”

Obama and Republicans are at a stalemate, however.

Obama has proposed some changes that would reduce spending on Social Security and Medicare, including an adjustment that would lower cost-of-living adjustments. But he has insisted on more tax revenue by closing what he says are loopholes for the rich, a step Republicans won’t take.

The impasse has revived threats of a government shutdown after the current budget year ends Sept. 30 and, more economically damaging, a default if Congress can’t agree to raise the debt ceiling later in October.

Some conservative Republicans say they will only extend current spending levels or increase the debt ceiling if Obama delays putting in place his health care law, a condition Obama has flatly rejected.

House Speaker John Boehner, R-Ohio, has tried to keep the focus on spending reductions, even as some on his right insist on defunding or delaying the health care law.

“This year the federal government will bring in more revenue than any year in the history of our government, and yet we will still have nearly a $700 billion budget deficit,” he said. “We have a spending problem. It must be addressed, period.”

]]>http://www.macleans.ca/news/world/obama-to-use-lehman-anniversary-to-cite-economic-progress/feed/0California Legislature raises minimum wage to $10 an hour, 1 of highest rates in Stateshttp://www.macleans.ca/news/california-legislature-raises-minimum-wage-to-10-an-hour-1-of-highest-rates-in-nation/
http://www.macleans.ca/news/california-legislature-raises-minimum-wage-to-10-an-hour-1-of-highest-rates-in-nation/#commentsFri, 13 Sep 2013 09:26:59 +0000The Associated Presshttp://www2.macleans.ca/?p=422234SACRAMENTO, Calif. – California’s minimum wage would rise to $10 an hour within three years under a bill passed Thursday by the state Legislature, making it one of the highest…

SACRAMENTO, Calif. – California’s minimum wage would rise to $10 an hour within three years under a bill passed Thursday by the state Legislature, making it one of the highest rates in the nation.

Washington state currently has the top minimum wage at $9.19 an hour, an amount that is pegged to rise with inflation. Some cities, including San Francisco, have slightly higher minimum wages.

The state Senate approved AB10 on a 26-11 vote and the Assembly followed hours later on a 51-25 vote, both largely along party lines. Gov. Jerry Brown indicated earlier this week that he would sign the bill, calling it an overdue piece of legislation that would help working-class families.

The bill would gradually raise California’s minimum wage from the current $8 an hour to $10 by 2016.

It would be the first increase in the state’s minimum wage in six years and comes amid a national debate over whether it is fair to pay fast-food workers, retail clerks and others wages so low that they often have to work second or third jobs.

Democrats said the bill by Assemblyman Luis Alejo, D-Watsonville, would help workers left behind during the recent recession.

“It simply gives hardworking Californians the dignity and respect to provide for their families with their own hard-earned wages,” Alejo said in arguing for the bill before his Assembly colleagues.

Sen. Marty Block, D-San Diego, said raising the minimum wage will stimulate the economy by giving lower-wage workers more money to spend.

“They’re not going to put it into a hedge fund,” he said.

But Republican lawmakers said it would do the opposite, encouraging businesses to cut jobs and automate.

“This is a classic example with how out-of-touch state leaders are,” said Sen. Jim Nielsen, R-Gerber.

Sen. Ted Gaines, R-Rocklin, said liberals want to raise the cost of tobacco to discourage its use without realizing the same principle applies to labour: “If you make something more expensive, people will buy less of it.”

The California Chamber of Commerce opposed the bill, saying it will drive up businesses’ costs by ratcheting up other wages and workers’ compensation payments.

“We have it tagged as a job killer, given the increased costs businesses will be faced with,” Jennifer Barrera, an advocate for the chamber, said before the vote.

Federal law sets a minimum wage of $7.25 per hour, but California is among 19 states and the District of Columbia that set a higher state minimum wage.

The federal minimum provides $15,080 a year assuming a 40-hour work week, which is $50 below the federal poverty line for a family of two. More than 15 million workers nationally earn the national minimum, which compares to the median national salary of $40,350, according to the U.S. Bureau of Labor Statistics.

President Barack Obama has sought an increase of the federal minimum wage to $9 an hour. San Francisco currently has the nation’s highest minimum wage at $10.50 an hour.

California’s minimum wage would increase to $9 an hour next July 1 and to $10 on Jan. 1, 2016. The bill does not index the rate to inflation, however, meaning it would remain at $10 per hour unless the Legislature raises it again in the future.

Washington and other states that index minimum wage rate hikes to inflation each year would, over time, outpace California’s rate unless the state made an adjustment.

A $10 minimum wage would increase earnings for a projected 2 million Californians by $4,000 a year and put $2.6 billion into the economy, Assembly Speaker John Perez, D-Los Angeles, estimated in a statement supporting the increase.

Opponents say businesses would suffer because owners also face voter-approved increases in sales and income taxes, and because of the uncertain costs of the federal Affordable Care Act.

Businesses are likely to cut jobs, increase consumer prices or both, they argue, citing a study by the National Federation of Independent Business. The group projects that mean the loss of between 46,000 and 68,000 jobs by 2023, depending on other factors including inflation.

WASHINGTON – The number of Americans seeking unemployment benefits plummeted last week 31,000 to a seasonally adjusted 292,000. But the drop was mostly because of technical issues in two states that delayed the processing of applications.

The Labor Department says less volatile four-week average fell to 321,250, the lowest in six years.

A department spokesman says the steep drop occurred because two states upgraded their computer systems last week and did not process all their applications. “This is not necessarily an indication of a change in labour market conditions,” he said. He would not identify the states.

Even so, prior to the glitch applications had dropped 7 per cent in the previous three months.

WASHINGTON – Continuing opposition from conservatives forced House GOP leaders on Wednesday to delay a vote on a temporary spending bill required to prevent a government shutdown next month.

The conservatives are unhappy with a plan by GOP leaders to advance the measure through the House coupled with a provision to derail implementation of the new health care law but allow the Democratic Senate to send it on to the White House shorn of the “defund ‘Obamacare’” provision so long as there is a vote on it.

The plan by top Republicans like Majority Leader Eric Cantor of Virginia would link a tea party plan to block the health care law with a measure that would keep government agencies running through Dec. 15. A Cantor spokesman confirmed that the vote was being delayed until next week.

But in an unusual twist, the measure would be decoupled when presented to the Senate and is designed to permit the Democratic-led chamber to advance the must-do funding measure to the president as a “clean” bill that’s free of the assault on Obama’s signature health care law.

The complicated plan landed with a thud among many tea party conservatives seeking to use the must-pass funding bill to spark a last-ditch battle with Democrats and Obama on the health care law. Health insurance exchanges are slated to begin functioning on Oct. 1.

“We’ve got a large number of folks in our conference who have said they need the vote to happen this way,” Rep. Rob Woodall, R-Ga. “The leadership tried to craft a solution that meets those needs. We may be finding out that we didn’t come as close to meeting those needs as folks would have liked.”

“I’m not impressed,” said Rep. Louis Gohmert, R-Texas.

The protests by conservatives have thus far left House leaders short of the votes required to pass the measure and forced the delay into next week.

GOP aides requiring anonymity to discuss internal strategy said Republican leaders are making progress in assembling the 217 votes that would pass the measure through the House. Last year’s elections narrowed the Republican margin of control in the House and GOP leaders can’t afford more than 16 defections, assuming no Democrats vote with them.

Democrats oppose the measure over its assault on Obama’s health care law. Many of them are doubly opposed because the GOP measure embraces spending levels consistent with automatic across-the-board spending cuts known as sequestration.

The drive to strip away money aimed at implementing Obama’s health care law has been a priority of grassroots conservative activists. And GOP lawmakers heard an earful from their constituents over the just-completed congressional recess on this issue. Groups like Club for Growth and Heritage Action said they will use the vote on the scorecards by which they measure whether Republicans are sufficiently conservative.

Conservatives want to send the legislation to block the health care law as part of a must-pass measure like the stopgap funding bill, which needs to be passed by the Democratic-led Senate and signed by the president if it is to become law.

More pragmatic Republicans see political risks to the demand by conservatives to defund Obama’s health care program as a condition for keeping the government open. They note that Democrats could simply peel the provision off of the funding bill and send it back to the House.

]]>http://www.macleans.ca/news/gop-stopgap-spending-plan-to-be-delayed-amid-conservatives-revolt/feed/0GOP leaders struggle to win support for funding bill required to avoid shutdownhttp://www.macleans.ca/news/gop-leaders-struggle-to-win-support-for-funding-bill-required-to-avoid-shutdown/
http://www.macleans.ca/news/gop-leaders-struggle-to-win-support-for-funding-bill-required-to-avoid-shutdown/#commentsTue, 10 Sep 2013 19:31:50 +0000The Associated Presshttp://www2.macleans.ca/?p=420903WASHINGTON – House Republican leaders are struggling to win over conservatives for a plan that would keep the government running through mid-December and force the Senate to vote on derailing…

WASHINGTON – House Republican leaders are struggling to win over conservatives for a plan that would keep the government running through mid-December and force the Senate to vote on derailing implementation of President Barack Obama’s signature health care law.

House leaders unveiled the plan to rank-and-file Republicans Tuesday morning but it was met with skepticism from prominent conservatives and landed with a thud among grassroots architects of the “defund Obamacare” drive.

The GOP plan would employ an unusual procedural trick to make sure that the tea party measure is passed by the House as part of the stopgap funding bill but is decoupled from the must-pass measure when sent to the Senate. That’s designed to ensure smooth passage of the funding bill before the start of the new budget year.

]]>http://www.macleans.ca/news/gop-leaders-struggle-to-win-support-for-funding-bill-required-to-avoid-shutdown/feed/0Economists keep rosy view for 3 per cent U.S. growth starting in 2Q of 2014http://www.macleans.ca/news/economists-keep-rosy-view-for-3-per-cent-u-s-growth-starting-in-2q-of-2014/
http://www.macleans.ca/news/economists-keep-rosy-view-for-3-per-cent-u-s-growth-starting-in-2q-of-2014/#commentsMon, 09 Sep 2013 09:08:58 +0000The Associated Presshttp://www2.macleans.ca/?p=420202Business forecasters maintained their rosy view of the U.S. economy in 2014, predicting 3 per cent growth by the second quarter of next year, low inflation and improving employment.
The…

Business forecasters maintained their rosy view of the U.S. economy in 2014, predicting 3 per cent growth by the second quarter of next year, low inflation and improving employment.

The top economists surveyed by the National Association of Business Economics between Aug. 8 and Aug. 20 also said there’s an 80 per cent likelihood that the pickup in growth will prompt the Federal Reserve to trim its monthly $85 billion purchases of mortgage bonds and Treasury bills next year.

The NABE’s 43 respondents said in a report released Monday that there’s a 45 per cent chance the Fed will begin its so-called “tapering” as early as this year.

But economists trimmed their expectations for the second half of 2013 since the last survey, in May.

The economists predicted that real gross domestic product would grow at a 2.3 per cent annualized rate in the third quarter through September, down from 2.5 per cent seen earlier; and 2.6 per cent in the fourth quarter, down from 2.8 per cent seen earlier. They were less optimistic about consumer spending, industrial production and private investment in nonresidential structures, equipment and software.

The economists’ slightly more pessimistic views were likely affected by the government initially reporting in July that second-quarter GDP grew 1.7 per cent. On Aug. 29, the Commerce Department revised the figure sharply higher for the April-June quarter, to 2.5 per cent.

“It’s fair to assume that they reduced their outlook for GDP because they had seen weaker business investment across the board,” said Ken Simonson, chief economist of the Associated General Contractors of America and an NABE analyst who helped compile the report. “The big takeaway is that the forecast now, like in May, is for gradually improving conditions, getting up to … growth of 3 per cent in 2014 and holding there.” The last time the economy grew more than 3 per cent over one year, on average, was in 2005.

NABE economists predicted that the consumer price index will grow just 1.3 per cent in 2013 and 1.7 per cent in 2014 when excluding volatile food and energy prices. The unemployment rate is seen falling to 7 per cent next year from 7.5 per cent this year, with the economy adding on average 199,000 non-farm jobs a month next year.

The dollar is seen holding steady against the European currency at $1.30 per euro next year, compared to an expected $1.31 in 2013.

]]>http://www.macleans.ca/news/economists-keep-rosy-view-for-3-per-cent-u-s-growth-starting-in-2q-of-2014/feed/0Unemployment falls for the wrong reason as many Americans give up on weak job markethttp://www.macleans.ca/news/unemployment-falls-for-the-wrong-reason-as-many-americans-give-up-on-weak-job-market/
http://www.macleans.ca/news/unemployment-falls-for-the-wrong-reason-as-many-americans-give-up-on-weak-job-market/#commentsFri, 06 Sep 2013 16:50:32 +0000The Associated Presshttp://www2.macleans.ca/?p=419586WASHINGTON – The drop in the unemployment rate in August to a 4 1/2-year low was hardly cause for celebration. The rate fell because more people stopped looking for work.…

WASHINGTON – The drop in the unemployment rate in August to a 4 1/2-year low was hardly cause for celebration. The rate fell because more people stopped looking for work.

More than 300,000 people stopped working or looking for a job. Their exodus shrank the so-called labour force participation rate — the percentage of adult Americans with a job or seeking one — to 63.2 per cent. It’s the lowest participation rate since August 1978.

Once people without a job stop looking for one, the government no longer counts them as unemployed. That’s why the unemployment rate dropped to 7.3 per cent in August from 7.4 per cent in July even though 115,000 fewer people said they had jobs.

If those who left the labour force last month had still been looking for work, the unemployment rate would have risen to 7.5 per cent in August.

“Pretty disappointing,” said Beth Ann Bovino, U.S. chief economist at Standard & Poor’s Ratings Services. “You saw more people leave the job market and fewer people get jobs. Not a good sign.”

Back in 2000, the participation rate hit a high of 67 per cent. At the time, women were pouring into the labour force. But women’s participation fell modestly through the mid-2000s — then dropped sharply from late 2009 through 2013.

Women’s participation rate was 57 per cent last month, down from a peak of 60 per cent in 2000.

For men, the participation rate last month was nearly 70 per cent. Their participation peaked in 1949 at 87 per cent and has declined gradually in the decades since.

In a 2011 report, the Congressional Budget Office noted that the recent drop in women’s participation was particularly steep among those with dependent children and well-educated women married to high-earning men.

Another factor in the declining participation is that the oldest baby boomers have reached retirement age.

Many Americans without jobs remain so discouraged that they’ve given up on the job market. Others have retired early. Younger ones have enrolled in school.

Some Americans have suspended their job hunt until the employment landscape brightens. A rising number are collecting disability checks.

“It’s not necessarily people retiring,” Bovino says. “It’s young people going back to school” rather than taking their chances on a weak job market.

Labour force participation for Americans ages 16 to 19 was just 34 per cent last month. That’s near their record low of 33.5 per cent set last year.

It isn’t supposed to be this way. After a recession, a brightening economy is supposed to draw people back into the job market. But it hasn’t happened. Labor force participation “certainly shouldn’t be at current levels,” Alexander says.

There aren’t enough jobs being filled. Employers are hiring about 4.3 million people a month — before layoffs, dismissals and resignations. In 2007, before the Great Recession, they were hiring 5.2 million a month.

There are three unemployed people, on average, competing for each job opening, compared with 1.8 when the recession began in December 2007.

]]>http://www.macleans.ca/news/unemployment-falls-for-the-wrong-reason-as-many-americans-give-up-on-weak-job-market/feed/0Growing signs of strength in U.S. economy suggest Fed could slow pace of bond buyinghttp://www.macleans.ca/economy/economicanalysis/growing-signs-of-strength-in-u-s-economy-suggest-fed-could-slow-pace-of-bond-buying/
http://www.macleans.ca/economy/economicanalysis/growing-signs-of-strength-in-u-s-economy-suggest-fed-could-slow-pace-of-bond-buying/#commentsThu, 05 Sep 2013 20:02:43 +0000The Associated Presshttp://www2.macleans.ca/?p=419255WASHINGTON – The economy is showing strength as summer nears a close — a trend that’s raising the likelihood that the Federal Reserve will slow its bond buying later this…

WASHINGTON – The economy is showing strength as summer nears a close — a trend that’s raising the likelihood that the Federal Reserve will slow its bond buying later this month.

The steady improvement is also lifting hopes for Friday’s report on job growth last month. The August gain is expected to nearly match the year’s monthly average of 192,000 jobs.

On Thursday, reports showed that services companies are stepping up hiring and that a dwindling number of people are losing jobs. Those figures follow reports of stronger auto sales and faster expansion by U.S. factories.

This year’s solid job growth, along with a sharp drop in layoffs, has helped lower the unemployment rate to 7.4 per cent from 7.9 per cent in January. It also means more Americans are earning paychecks and will likely boost consumer spending in coming months.

Analysts predict that employers added 177,000 jobs in August.

“People are finding work, and they have more money to spend,” said Drew Matus, an economist at UBS.

The improved jobs picture is a key reason most economists expect the Fed to announce later this month that it will scale back its bond buying. The Fed’s $85 billion a month in Treasury and mortgage bond purchases have helped keep home-loan and other borrowing rates ultra-low to encourage consumers and businesses to borrow and spend more.

Chairman Ben Bernanke has said the Fed could begin slowing its bond purchases by year’s end if the economy continued to strengthen and end the purchases by mid-2014. At its policy meeting Sept. 17-18, the Fed will debate whether to taper its monthly purchases and, if so, by how much.

Key data released in the past week have bolstered the position of those Fed officials who argue that the economy is healthy enough to withstand tapering:

— U.S. services firms, which employ about 90 per cent of the U.S. workforce, expanded last month at their fastest pace in nearly 8 years, according to a report Thursday from the Institute for Supply Management. Sales and new orders rose. Service companies also hired at the fastest pace in six months. The institute’s index of service sector growth has jumped 5.8 points in the past two months to 58.6 — the biggest two-month increase since it began in 1997. Service firms include retailers, banks, construction companies and hotels.

— A four-week average of applications for U.S. unemployment benefits has fallen in the past month to its lowest point since October 2007 — two months before the Great Recession officially began. The trend shows that employers are laying off fewer and fewer workers.

— Survey results reported Thursday by payroll provider ADP found that American businesses added 176,000 jobs in August. That was just below the 198,000 added in July but close to the past year’s average monthly gain.

— U.S. factories grew last month at their strongest pace in more than two years, according to the ISM’s index of manufacturing growth. A measure of orders soared to its highest level since April 2011, a sign that factory output could grow further in coming months.

— Americans bought new cars in August at the fastest annual pace since November 2007, before the recession. Auto sales jumped 17 per cent compared with a year earlier. Toyota, Ford, Nissan, Honda, Chrysler and General Motors all posted double-digit gains over last August.

Still, more than four years after the recession officially ended, the economy has a long way to go return to full health. The unemployment rate is well above the 5 per cent to 6 per cent range associated with a normal economy.

In addition, most of the growth in the number of people working is due to fewer layoffs rather than strong hiring. Many employers remain reluctant to fill jobs.

Job growth measures the number of people hired minus the number who lose or quit jobs. When companies are laying off few, it doesn’t take many hires to create solid growth in the number working.

Also, many of the jobs created this year have been part-time positions in industries with generally low pay, such as hotels, retailers and restaurants. Such jobs leave consumers with less money to spend than do better-paying positions in industries such as manufacturing and construction, which have mostly shed jobs the past four months.

Businesses have also reduced spending on heavy machinery and other long-lasting factory goods. That caused orders to U.S. factories to fall in July by the most in four months, the Commerce Department said Thursday.

And last month, Americans spent cautiously, according to sales figures released Thursday by many chain retail stores. Revenue at stores opened at least a year rose 3.7 per cent, according to a preliminary tally by the International Council of Shopping Centers. That was below the 6 per cent gain in August last year.

The figures bolster evidence that a shift in consumer spending toward autos, real estate and home improvement is leaving less room for nonessential items like clothing.

___

AP Retail Writer Anne D’Innocenzio contributed to this report from New York.

WASHINGTON – The number of Americans seeking unemployment benefits dropped 9,000 last week to a seasonally adjusted 323,000, near the lowest level since June 2008. The figure shows employers are laying off fewer and fewer workers, an encouraging sign one day before the government will issue its August jobs report.

Weekly applications are just 1,000 above a five-year low reached last month, the Labor Department said Thursday. The four week average, a less volatile measure, declined 3,000 to 328,500. That’s the lowest point since October 2007.

“Firms continue to be less concerned about cutting labour costs and may be more comfortable with raising them,” said Jonathan Basile, an economist at Credit Suisse.

Applications are a proxy for layoffs. They have fallen 5 per cent in the past two months, raising hopes that hiring could pick up.

Economists forecast that the August jobs report will show employers added 177,000 jobs, up from 162,000 in July. The unemployment rate is expected to remain 7.4 per cent.

Still, the unemployment rate is well above the 5 per cent to 6 per cent range associated with a normal economy. In addition, most of the net job growth this year is due to fewer layoffs rather than strong hiring.

Net job growth is the number of people hired minus the number who lose or quit jobs. When companies are laying off few workers, it doesn’t take many hires to create a solid net job gain.

Nearly 4.4 million Americans received unemployment benefits in the week that ended Aug. 17, the latest period for which figures are available. That’s about 70,000 fewer than the previous week. A year ago, 5.5 million Americans were receiving benefits.

Many of the jobs created in recent months have been lower-paying, part-time positions in industries such as hotels, restaurants and retail. Higher-paying industries such as manufacturing and construction have mostly shed jobs since spring.

But some signs indicate that hiring in both industries could pick up. A private survey released Tuesday showed that factory activity grew last month at the fastest pace in more than two years. And manufacturers added jobs, though at a slower pace than in the previous month.

Spending on U.S. construction projects, meanwhile, rose to its highest level in more than four years in July. It was spurred by strength in both housing and commercial building.

The economy expanded at a 2.5 per cent annual rate in the April-June quarter, a modest pace but much faster than the 1.1 per cent annual rate in the first three months of the year. Home construction and business investment spending were two key drivers of growth.

Many economists think growth is slowing to about a 2 per cent annual rate in the current July-September quarter.

]]>http://www.macleans.ca/news/applications-for-weekly-u-s-unemployment-benefits-fall-to-323000/feed/0U.S. economy grew at revised 2.5 per cent annual rate in April-June quarterhttp://www.macleans.ca/news/u-s-economy-grew-at-revised-2-5-per-cent-annual-rate-in-april-june-quarter/
http://www.macleans.ca/news/u-s-economy-grew-at-revised-2-5-per-cent-annual-rate-in-april-june-quarter/#commentsThu, 29 Aug 2013 14:35:22 +0000The Associated Presshttp://www2.macleans.ca/?p=417244WASHINGTON – The U.S. economy grew at a 2.5 per cent annual rate from April through June, much faster than previously estimated. The steep revision was largely because U.S. companies…

WASHINGTON – The U.S. economy grew at a 2.5 per cent annual rate from April through June, much faster than previously estimated. The steep revision was largely because U.S. companies exported more goods and imports declined.

The Commerce Department said second-quarter growth was sharply higher than the initial 1.7 per cent rate it reported last month. And the growth this spring was more than double the 1.1 per cent rate from January through March.

The improvement in the trade deficit helped offset a weaker government spending.

Economists expect growth will stay at an annual rate of around 2.5 per cent in the second half of the year, helped by steady job gains and less drag from federal spending cuts. Still, some say higher interest rates might restrain the economy’s expansion in the second half.

Rates could rise even further if the Federal Reserve decides to reduce its $85 billion a month in bond purchases at its September meeting. The Fed will consider the stronger second-quarter growth when making a decision next month. The bond purchases have helped keep long-term borrowing rates low.

Paul Ashworth, chief U.S. economist at Capital Economics, said stronger growth in the second quarter “should give Fed officials more confidence that the recovery is gathering steam as the fiscal drag begins to fade.”

He said the Fed is now more likely to slow the bond purchases in September, although that decision depends heavily on the August employment report. The government will release the employment report next week.

Ashworth forecast that growth in the current July-September quarter was likely to come in around 2.5 per cent as well with the potential for even stronger growth in the October-December quarter. But he said the forecast assumes the Obama administration and Congress reach a deal to fund the government before it hits its $16.7 trillion borrowing limit cap in mid-October.

The government’s estimates of economic expansion measure changes in the gross domestic product, the broadest gauge of the economy. GDP measures the output of all goods and services produced in the United States.

The revision was made after the trade deficit narrowed sharply in June — information that wasn’t available to government analysts produced their first estimate for second-quarter growth. The additional information left trade neutral in the second quarter, instead of subtracting 0.8 percentage points from growth.

Government spending shrank an annual rate of 0.9 per cent in the second quarter, much worse than the 0.4 per cent drop initially estimated. Spending by the federal government shrank at a 1.6 per cent annual rate. State and local governments cut at a 0.5 per cent rate.

Two key areas of the economy — housing and business investment — remained strong in the revision to second-quarter growth. Housing construction grew at an annual rate of 12.9 per cent, the fourth consecutive quarter of double-digit growth. Business investment on structures was revised up to at 16.1 per cent rate, although spending on equipment was revised a bit lower.

Consumer spending, which accounts for 70 per cent of economic activity, grew by a 1.8 per cent rate in the second quarter. That’s unchanged from the initial estimate but down from a 2.3 per cent growth rate in the first quarter.

Many economists said a key signal of the economy’s health in the second half of 2013 will come from Friday’s report on consumer spending in July. Consumer spending held up in June. But rising interest rates might have caused it to slow in July.

Long-term rates have risen since Chairman Ben Bernanke said in June that the Federal Reserve could begin trimming its bond purchases later this year if the overall economy and the job market kept improving. Many economists think the Fed will begin slowing its monthly bond purchases to $70 billion or $75 billion. Others think it will delay any pullback in bond buying to await more data on how the economy is faring in the second half of the year.

NEW YORK, N.Y. – Fast-food customers in search of burgers and fries might run into striking workers instead.

Organizers say thousands of fast-food workers are set to stage walkouts in dozens of cities around the country Thursday, part of a push to get chains such as McDonald’s, Taco Bell and Wendy’s to pay workers higher wages.

It’s expected be the largest nationwide strike by fast-food workers, according to organizers. The biggest effort so far was over the summer when about 2,200 of the nation’s millions of fast-food workers staged a one-day strike in seven cities.

Thursday’s planned walkouts follow a series of strikes that began last November in New York City, then spread to cities including Chicago, Detroit and Seattle. Workers say they want $15 an hour, which would be about $31,000 a year for full-time employees. That’s more than double the federal minimum wage, which many fast food workers make, of $7.25 an hour, or $15,000 a year.

The move comes amid calls from the White House, some members of Congress and economists to hike the federal minimum wage, which was last raised in 2009. But most proposals seek a far more modest increase than the ones workers are asking for, with President Barack Obama wanting to boost it to $9 an hour.

The push has brought considerable media attention to a staple of the fast-food industry — the so-called “McJobs” that are known for their low pay and limited prospects. But the workers taking part in the strikes still represent a tiny fraction of the broader industry. And it’s not clear if the strikes on Thursday will shut down any restaurants because organizers made their plans public earlier in a call for workers around the country to participate, which gave managers time to adjust their staffing levels. More broadly, it’s not clear how many customers are aware of the movement, with turnout for past strikes relatively low in some cities.

Laila Jennings, a 29-year-old sales associate at T.J. Maxx, was eating at a McDonald’s in New York City this week and said she hadn’t heard of the movement. Still, she said she thinks workers should be paid more. “They work on their feet all day,” Jennings said, adding that $12 to $15 an hour seemed fair.

As it stands, fast-food workers say they can’t live on what they’re paid.

Shaniqua Davis, 20, lives in the Bronx with her boyfriend, who is unemployed, and their 1-year-old daughter. Davis has worked at a McDonald’s a few blocks from her apartment for the past three months, earning $7.25 an hour. Her schedule varies, but she never gets close to 40 hours a week. “Forty? Never. They refuse to let you get to that (many) hours.”

Her weekly paycheque is $150 or much lower. “One of my paychecks, I only got $71 on there. So I wasn’t able to do much with that. My daughter needs stuff, I need to get stuff for my apartment,” said Davis, who plans to take part in the strike Thursday.

She pays the rent with public assistance but struggles to afford food, diapers, subway and taxi fares, cable TV and other expenses with her paycheque.

“It’s really hard,” she said. “If I didn’t have public assistance to help me out, I think I would have been out on the street already with the money I make at McDonald’s.”

McDonald’s Corp. and Burger King Worldwide Inc. say that they don’t make decisions about pay for the independent franchisees that operate the majority of their U.S. restaurants.

For the restaurants it does own, McDonald’s said in a statement that pay starts at minimum wage but the range goes higher, depending on the employee’s position and experience level. It said that raising entry-level wages would mean higher overall costs, which could result in higher prices on menus.

“That would potentially have a negative impact on employment and business growth in our restaurants, as well as value for our customers,” the company said in a statement.

The Wendy’s Co. and Yum Brands Inc., which owns KFC, Pizza Hut and Taco Bell, did not respond to a request for comment.

The National Restaurant Association says the low wages reflect the fact that most fast-food workers tend to be younger and have little work experience. Scott DeFife, a spokesman for the group, says that doubling wages would hurt job creation, noting that fast-food chains are already facing higher costs for ingredients, as well as new regulations that will require them to pay more in health care costs.

Still, the actions are striking a chord in some corners.

Robert Reich, a worker advocate and former Labor Secretary in the Clinton administration, said that the struggles of living on low wages is hitting close to home for many because of the weak economic climate.

“More and more, people are aware of someone either in their wider circle of friends or extended family who has fallen on hard times,” Reich said.

Mary Kay Henry, president of the Service Employees International Union, which is providing the fast-food strikes with financial support and training, said the actions in recent months show that fast-food workers can be mobilized, despite the industry’s relatively higher turnover rates and younger age.

One after the other, Canada’s big banks have all hiked-up mortgage rates this week. Why? In large part, it has to do with the U.S. recovery.

There are two major channels through which a healthier and faster-growing economy down south is driving up the cost of borrowing for Canadian homeowners. The first one: Foreign capital that flocked into Canada since the onset of the financial crisis is now flowing out, and much of it to the U.S. Plus, American banks have now repaired their balance sheets and U.S. GDP growth has surpassed Canada’s and will likely keep up that faster pace for the foreseeable future. Canada’s appeal compared to the U.S., in other words, has diminished both in terms of the perceived safety of our financial system and our economic strength. Investors have taken note and reduced their demand for Canadian debt securities, pushing up bond yields and, consequently, mortgage rates.

Another way in which this sort of investor pull-back might affect the Canadian housing market is by putting downward pressure on the demand for Canadian homes. If foreigners aren’t so keen on buying Canadian bonds anymore, they might have also lost interest in investing in, say, Toronto condos. In 2008 to 2009, Canadian housing was relatively cheap compared to the U.S., but after years of breakneck price growth north of the border and declines down south, that’s no longer the case. Canada’s residential real estate market is now cooling, whereas U.S. housing prices are finally back on the rise.

Unlike in the bond market, it’s hard to know how much a presumed exit of foreign home buyers from the Canadian market actually matters. There is no way of quantifying just how big the influx of capital from abroad has been, says TD economist Sonya Gulati. Sure, there is anecdotal evidence that foreign buyers were snapping up Canadian real estate property in select markets such as Toronto and Vancouver, she explains, but the phenomenon at large is difficult to track. “It can be cash sales, where you don’t necessarily have to put down your information,” Gulati says. And if we don’t know how much money went in, it’s hard to predict what the effects of that capital drying out might be.

The second factor linking the U.S. recovery to higher mortgage rates in Canada is U.S. monetary policy. Since the Federal Reserve announced it might start rolling back its quantitative easing policy in May, yields on long-term U.S. bonds have climbed a whopping 100 basis points—and Canadian bonds have followed. The rise in Canada has been a bit more muted—at about 60-70 basis points—says Gulati, because Canadian bonds were offering better returns to begin with and “the U.S. has more upward room to go.” On both sides of the border, though, the trend is up.

The idea behind the Fed’s massive monthly purchases of 10-year treasuries and mortgage-backed securities was to pump demand for such securities and keep long-term interest rates low, allowing consumers and businesses to borrow cheaply. Now, though, widespread anticipation that the Fed is going to scale back its bond-buying activity is driving interest rates on things such as long-term bonds and mortgages back up. In Canada, fixed-rate mortgage rates tend to follow the trajectory of long-term Canadian bond yields, which, in turn, track U.S. bonds. For the next two years or so, Gulati predicts, U.S. yields will likely continue to climb “a little bit faster” than Canada’s.

Still, what if, at one point between now and the end of QE tapering, Canadian long-term interest rates were to have the same kind of knee-jerk reaction seen in the U.S. over the summer? That’s one of the worst-case scenarios TD uses in its stress tests of the Canadian housing market. A series of 100-basis point spikes in the rate of five-year fixed-term mortgages could turn Canada’s current housing market cooling into a hard-landing, says Gulati.

Accelerating growth in the U.S., in other words, is sucking out steam from an already saturated Canadian market. There’s no reason to bear Uncle Sam ill will, though. The U.S. recovery is also making the loonie cheaper, which should boost sales of Canadian products abroad and, in turn, help exports fuel Canada’s growth just as housing demand and consumption weaken, says Gulati. Likewise, expect Canadian businesses to soon get off their proverbial piles of cash and spend some of it on new machinery and equipment, which will help offset the impact of foreign capital outflows. Canada’s demand-driven growth worked well in the first few years after the financial crisis, but continued economic expansion requires re-balancing toward the export sector, says Gulati. The U.S., it seems, is unwittingly helping us turn around.

]]>http://www.macleans.ca/economy/business/why-are-canadian-mortgages-rising-and-how-far-could-they-go/feed/7Help for the Canadian economy? Yes, from Europe.http://www.macleans.ca/economy/business/help-for-the-canadian-economy-yes-from-europe/
http://www.macleans.ca/economy/business/help-for-the-canadian-economy-yes-from-europe/#commentsWed, 21 Aug 2013 15:34:11 +0000Erica Alinihttp://www2.macleans.ca/?p=415145The eurozone recovery is shaky, but it's still a big deal

The eurozone’s recession is formally over. Good news—but how good for Canada? The European Union is the second-largest destination for our merchandise exports, but that means eight per cent of the stuff we sell abroad every year ends up there. It’s not much compared to the U.S.’s 73 per cent slice of our export market. Europe matters more for the U.S.’s trade balance sheet, where it accounts for about 20 per cent of goods sold abroad. Exports, though, account for only about 10 per cent of U.S. GDP.

Still, the eurozone’s economic resurgence could provide an important lift to the U.S. recovery, and, through that, to Canada as well. Here’s why:

1.The U.S. needs to export more and seems ready to do so. So far, the U.S. has been able to restart its economy largely by reviving consumer demand and housing. While that might have been the only viable strategy in the early stages of the recovery, it doesn’t seem like a sustainable trend in the long term. With median incomes stagnating, American consumers can’t go much further without taking on new debt. The housing market, with a few local exceptions, has plenty of room to grow without wading into bubble territory, but real estate rallies, as we know know well, can’t last forever. What then? Well, exports, for example. One of the root causes of the financial crisis was global imbalances: America’s super-sized current account deficit and China’s equally massive surplus. The only sustainable way forward for the global economy, analysts warned back in 2009, was for the two to recalibrate their economies. The U.S., it seems, is ready to do that. The Obama administration, the Wall Street Journalnoted, seems a lot keener on international trade than it did during the first term. Washington has signed a flurry of trade agreements and is pressing ahead with two massive trade negotiations, one with Asia, the other with the EU. And with its low manufacturing costs, tech-industry leadership and, now, natural gas wealth, the U.S. seems primed for an export renaissance. There’s a snag, though: Emerging markets, home to hundreds of millions of potential consumers of made-in-the-U.S.A. products industry, are in a funk.

2. As emerging economies slow down, Europe could pick up some of the slack. That’s where the end of the recession in the eurozone could come in nicely. Europe’s consumers might be able to absorb at least a little bit of America’s exports potential and help tie over Uncle Sam while the Brics (Brazil, Russia, India, China, and South Africa) sort their many issues.

3. Consumers played a big role in helping return the eurozone to growth. One reason to believe that the revival in Europe might aid the U.S. recovery via trade flows lies in the fine print. It was growth in Germany and France in the second quarter of the year that propelled the eurozone above the zero-growth mark, and German and French consumers, in turn, gave their respective economies a considerable lift. That’s especially welcome news in the case of Germany, which has long relied on an outsized trade surplus, while keeping wages and consumption artificially low. The country might be moving away from that model now: Consumption is growing robustly and worker compensation is rising faster than inflation, while unemployment stays at historic lows. German wallets, it appears, might soon have a healthy appetite for foreign goods.

There are, of course, innumerable “ifs” and “buts” in this scenario. Much of the eurozone is still in recession. Outside the eurozone, the U.K. is struggling. Germany, for all the signs of rebalancing, still carries a considerable trade surplus. China’s slowdown might turn into a hard landing. All kinds of things could go wrong. Still, the end of the eurozone recession is a small step in the right direction.